Column: Market-o-logy
http://www.moneycontrol.com/news/cnbc-tv18-analyst-markets/a-case-for...

A Case For Bulls

*“It's far better to buy a wonderful company at a fair price than a fair
company at a wonderful price.”
                                                             - Warren
Buffett*

*By Haresh Soneji, CNBC-TV18*

The headline says it all. Things seem to be in the upbeat mood. Most pockets
of the economy seem to be firing on all engines, the consumer appears to be
back, earnings for the September ’09 quarter looked up and the equity market
doesn’t seem to be looking weary – though in the previous few sessions
volatility has been the name of the game.

It’s amazing how things can change over a couple of weeks. This column a
couple of weeks back (
http://www.moneycontrol.com/news/cnbc-tv18-analyst-markets/buy-hold-o...)
advised investors to sell for the short term. But, that was then – two weeks
back. The long term small retail investor could have spotted some right
stocks to safely lock some capital (though this column continues to advise
that investing is a full time profession and is best left to professionals).
Not that professionals don’t make mistakes. Everybody is the student of the
market. The best of managers could be wrong big time. Well, that’s equity
market for you.

It’s not completely the fault of professionals. Allow me to explain with
example from this very own column. On March 13, this column (
http://www.moneycontrol.com/news/market-outlook/its-all-over_388853.html)
was terribly wrong. The column though pointed that market could well bottom
out, news flows and other trends in the market could weight large on the
market. So, signals can be quite contradictory. As you can see, we have had
the bets pullbacks in the shortest time, a feat never witnessed in the
Indian equity market.

Having said that, the earnings season provided some cheer to the equity
market. While the overall numbers did look positive, the Big Boys reported
numbers lower than the Universe (CNBC TV18 analysed 1,952 companies ex-oil,
trading and financials). The next two quarters from here are bound to show
some amazing YoY performance – most of it due to base effect. December 08
was the worst quarter in terms or PAT growth for India Inc.

Let me share a secret. Don’t be surprised, if the December quarter produces
some wild numbers. Consider this: PAT (profit after tax) of some 2,000
companies was Rs 25,500 crore in December 08 quarter. PAT during September
’09 quarter was around Rs 43,000 crore. Sequentially PAT continues to inch
up. With volume growth picking up, India Inc. might report the highest ever
PAT during the December ’09 quarter. Even if it’s a flat quarter
sequentially, at Rs 43,000 crore, PAT growth is up 70% YoY. This pushes up
the trailing 12 months profits by 12% odd.

Yes, 70% YoY growth in PAT and 12% inch up on TTM (trailing twelve month)
basis. This is so surreal, but has a high probability. Suddenly, the market
looks so much more attractive. And abundant liquidity chasing stocks calls
for another BULL rally.

I am not over yet. The government is looking to divest and that happens only
when sentiments are upbeat. The equity market therefore should rightfully so
should not crash big time.

In this euphoria, the ultimate question remains – how far ahead has the
market discounted this possibility? Once this quarter and the next are done
away with, there may not be any base effect. Volume growth might continue,
but top line may continue to disappoint due to price impacts and overhead
costs. Has the market factored this?

Next, the CNBC-TV18 Boston Analytics Consumer Confidence Index in October
showed a marginal up tick over September (Get the complete analysis of the
index here – www.bostonanalytics.com/India_Watch/India_Watch.html). But, was
this the impact of the festive season as many indicators continue to remain
sluggish.

Overall, the November-February period has historically delivered the best
returns to investors. We are sitting on a sweet spot. How much the market
has discounted this base factor impact will determine what kind of PEs
Indian market will command. If history is an indication, the trading range
for the benchmark indices has inched up and the base too, in case of a
correction. Any correction is an opportunity to go long if you are a long
term investor.

*Disclosure:* *The author is not permitted to trade and/or invest into the
equity market directly or indirectly, apart from investing (long only) in
mutual fund products. His equity exposure is only to the extent of ESOPs
granted by the employer. *

--
Best Regards,
Haresh Soneji

+++++++++++++++++++++
END PIECE - CRY PLEDGE
"Before anything else, I'm an Indian. And so is this little child. The
rights I enjoy as a citizen of this free country are hers too. She has a
right to be free. She has a right to be happy. But I'm going to fight for
her because she has the right to be a child. I'm going to fight for her
every single day, every single moment. With my skills. With my resources.
With my heart. I'm going to fight for her because I can. And she can't."
+++++++++++++++++++++