Saturday, May 14, 2011

Important cues post monetary policy & assembly election results - Detailed analysis Guest Post Sanil Sonalkar

A Guest post from Sanil Sonalkar

The RBI's monetary policy announcement on 3rd May, 2011 seems to have thrown a spanner in the works and upset the calculations of most analysts who had reasons to believe that the Sensex had a smart chance of crossing the 20,000 barrier. We are now trading at considerably lower levels & some blue-chip counters are dangerously close to their 52-week lows. Yesterday's relief rally can be partially attributed to the positive election results and partially to short-covering in many of the counters. In the aftermath of the policy announcement & the assembly election results, we need to take a holistic view of the political & economic situation and its likely impact on our markets. I have managed to identify the following important cues for the coming days :-

(1) Interest rate sensitives are bound to be under some pressure for the time being at least. Under such circumstances, traditionally, investors would look at parking funds in safer havens such as FMCG, Pharma & IT which are not directly impacted. FMCG, in particular, would be a reasonably safe bet, but purely for investors who are looking at just capital protection and not-so-great returns. Banks, which have borne the brunt of the rate hikes, are now looking relatively cheaper. A contrarian buy would be to accumulate good private banking stocks at the current lower levels in a phased manner. My sense is that some more rate hikes are imminent in the coming months but once this peaks out, expect a significant rally in these banking stocks.

(2)There is good news for depositors of bank deposits on two counts :- firstly, you would get 0.5% higher on your savings bank account, which would induce investors to park some additional surplus funds here ; secondly, some banks have now started giving higher returns on short-term FD's (upto 1 year) - HDFC Bank being a prime example. Investors, who are wary of the extreme volatility that is currently present in equity markets would do well by capitalising on the higher interest rates by adding to their bank deposits portfolio. (this is
again for people who are just looking at capital protection and are willing to sacrifice on higher post-tax returns).

(3) The yellow metal - gold seems to have lost some of its lustre over the past few days. With Akshaya Tritiya out of the way, movement here is likely to remain subdued, and even some minor corrections cannot be ruled out. A prudent move would be to go through the GOLD ETF route and make systematic investments in a phased manner and never in a lumpsum.

(4) Firms primarily based out of West Bengal are likely to benefit on account of the change in the regime. People are now expecting some growth and development in this region and possibly fresh investments might also get an impetus. ITC is a classic example of an organisation which could immensely benefit from the political developments. Existing investors could consider adding to their portfolio while new investors could consider some exposure towards this stock.

1 comment:

  1. It would be interesting know the logic behind why 'ITC is a classic example of an organisation that will immensely benefit from the political developments'. What were its problems during the previous regime which are likely to get solved now? Please enlighten.

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