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Analysis of Stock Analysis – Need for Eternal Vigilance

Stock market is a complicated web and the stock prices fluctuate under pulls and pressure from different directions. A thousand mad trains run in all directions, and many times, you miss the train that you intend to catch. Profits become the mirage. Conditions in the local market and those in the global market have the telling effect on the prices of shares. Let us have a look at the present condition in India and how it is likely to influence the share prices. This situation can be true of any country. As you are in the know, the share market has the habit of baffling all, including the experts in the Finance Ministry and brainy analysts with the Central Banking Authority of a country.

Stock AnalysisFor the quarter ending June 2010, India’s GDP growth has been the fastest. It is an encouraging trend as compared to the corresponding period to some of the countries listed below.

China                                                11.10

Brazil                                                  9.00

India                                                   8.80

Japan                                                  4.20

US                                                        3.20

The above mentioned growth of India has been a record performance as compared to the figures of last three years. Excellent manufacturing activity on the industrial front and good farm output are cited as the reasons. In the background of slowing global economy, performance by India, Asia’s third largest economy, is a creditable performance.

Here is a plus point for the investors and for the share market analysts to do brisk calculations and revise their projections and paint a hopeful picture.

But, think of the other side. The GDP show is encouraging, but is that everything? It is one of the ‘mad trains’ on the stock market track, as far as share prices are concerned. Good production is one part of the economic activity. What is important is the demand from the consumers. If the stocks pile up, inventory could be a problem. The industrial, services and agricultural sectors have done well and are looking good, but they all must stop at the door of the consumer, if he is not willing to extend a cordial invitation to them. Domestic demand and global slowdown will leave the tell-tale marks in the growth of the coming quarters. The growth pace is unlikely to be maintained.

The common man, mostly those belonging to the middle class, occupies the centre-stage again. Depressed performance in household expenditure is observed. The investment portfolio is also not encouraging. Central Bank is inclined to revise its earlier stance of its plans to raise the interest rates.

The effect on the equity prices is seen due to the confusing state of the economy. The stock market is behaving volatile. The growth in the domestic demand is discouraging. Private consumption slumped. Fixed investment dropped sharply from 3.7% from 17.7% as compared to the previous quarter. Government consumption showed the negative growth. Export and import figures also show the declining trend. The growth in the supply side may create more problems with stocks piling up.

Here is an example, where the analysts of the share market will have to think deep and an investor has to be on the guard about protecting his portfolio. This holds good for analysts all over the world in all stock exchanges.   Analysis is not simply a jugglery of figures. The sixth sense of an analyst plays the important role here.

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2 Responses

  1. A study carried-out by a reliable global research firm has confirmed that global economy has bottomed out and the recovery has commenced.

    Baltic Dry Index is considered as the most reliable leading indicator of global economic activity. This index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains. Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. This has bottomed out at 1700 levels and is presently at 2750.

    The next global economic growth cycle which has just commenced and may run a 7-8 year cycle, has shifted its Center of Gravity. The run-up of next three decades will be primarily driven by China, India & Brazil. The shifting of investment capital into these regions will surely take place, but after lot of initial resistance. This is because investors are seeing the wrong direction and reading wrong indicators.

    Auto sales in Asian region is surging. Confidence level of Entrepreneurs in Asia especially India & China are surging. Consumption is booming. Prosperity levels are on the rise. Employment rate is rising.

    If so, what are the implications? The stock markets are yet to pick up the signal. But it is just a matter of time. Along with rising equity markets, commodities will move up. Crude prices and coal prices will soon commence their rally. Stock markets will pick up. But the point being conveyed is that one should not keep an eye on Dow and Nasdaq. Yes, they will rally but there isn’t enough headroom. Sensex, Bovespa, Hang Seng etc will lead the rally and hit new highs. The old order will change gradually. It is time world starts tracking monsoons in India, commodity exports from Brazil, Russia, IIP numbers of China etc. So, when Dow touches 11000 Sensex will touch 22000.

    What are the stocks to look for. Here are our six top picks:-
    1. Reliance Industries
    2. Larsen & Toubro
    3. Mercator Lines
    4. SBI
    5. Pantaloon Retail
    6. Mahindra & Maindra

    An investment of Rs one lakh invested in each of the stock will return Rs 12 lakh in 12-14 months time. The midcap stock Mercator lines is added in the portfolio to spruce up the return ratio.

    Here are the reasons why we have picked the stocks. The common reasons running through all these stocks are their able management. All these companies are well-diversified and yet with clear visibility of steady cash flows. All of them are in sectors which pose heavy entry barriers and there are difficulties in starting or replicating similar businesses. All of them reflect India growth story and will be befitted directly or indirectly through this. All the large cap stocks will give 50% return in a year. Mercator Lines will reward investor very handsomely. Our immediate target is Rs 75/ – One can expect a price of Rs 120/- in one year period and Rs 240/- in two years. The reasons are good cash levels, high institutional holding and diversifications which are on the verge of pumping additional cash into the company, exposure to commodity space – i.e coal & oil

    Incidentally all of them are F&O stocks.

    Three cheers to India and its investors!

    • More or less, I need to agree with you and yet I would advise the Indian investors to drive slowly to reach safely. The world is one family–I mean the manufacturing world and the investing world! The changes in one end, affect the entire structure.

      Chandrakant Mallya