ithought market wrap No. 54 dated 2nd DEC 2011
A company’s valuation is lower than the notional guideline value of the land on which its factory is built. It even has already sourced alternate land to shift its business and commence operations. It has very stable earnings and no debt. The company’s sum of the parts valuation is clearly lower in comparison to its market capitalization. Its earnings are growing and prospects look attractive. Several small and mid caps boast of robust fundamentals as delineated above. Yet, investors are failing to even see the investment argument. Investors often ignore compelling investment arguments exactly when they must be open and exploratory. The question before us is not `if’ the investment argument will be found compelling? The questions are `when’ and `by whom’ this argument will be spotted and acted upon. The smart ones are already moving to take selective investment bets. It is these contrarians who will make the most when markets turn bullish. Are you one of the smart & savvy ones?
The FII’s who sold heavily in November turned buyers on the first two days of December. The DII’s continue to play contrarian strategies to FII’s providing much needed stability to the markets. The FII fund flows hold the key to the year end close of markets. The markets are closely watching the fate of the FDI in retail and it is likely that its passage will be the next domestic event to trigger an uptrend. Globally, next week’s meeting of European leaders on December 9, 2011 will be closely watched as Indian markets remain closely coupled to global trends. RBI’s moves on liquidity will give greater clarity on the future of monetary policy and this will set the direction of interest rates for next year. The fate of commodities hangs in balance and depends heavily on the contours of the bail out and restructuring that will take effect in Europe. The coming weeks are crucial to equity investors and will probably be a game changing phase for a long time to come.