Sensex to touch 24000 sometime during the year: Raamdeo Agrawal

In an interview with ET Now, Raamdeo Agrawal , Jt. MD, Motilal Oswal Financial Services , talks about contra investing and his contra calls.

Define contra investing for us.

The stock which does not deserve popular opinion is what is called contrarian kind of view. You make money when you buy a stock which is absolutely unpopular, because most of the money is made in this kind of stock when the perception changes. Perception is the driver of PE. If the perception of the stock is negative and from there it changes to positive to a PE multiple of 10 to 100, it makes you a lot of money.

Has contra investing worked for you?

I am not a contra investing type. However, in one or two situations, I bought in the past and was very successful in those ideas. I had bought Calcutta Electric 5-6 years back at about Rs 13. The whole company was available at about Rs 90 crores. There were factors like monopoly into Calcutta, employing transmission and profitability and they were highly leveraged and the interest rates fell from 13-14% to around 6-7%. We did a ratio called interest cost to the market cap and it turned out that interest was 3 times or 4 times more than the total market cap and hence the impact of the interest rate decline would have been most on Calcutta Electric. People around me from Calcutta told me that it looked worse than BMC office and I couldn't even stand there. They told me not to look at it and that was the reason it was at Rs 13.

What prompted you to buy that stock?

I had a very bullish view on change in the value of a stock once the interest rates declined and we saw major decline in the interest rates. I wanted to buy something which was getting hurt due to the high interest rate scenario at that point of time and would be significant beneficiary. Calculated business was very stable and it had a good reputation in Calcutta under RPG management but yet the net profit after tax was low because it was heavily leveraged and West Bengal Government was disputing about what costs were allowed to be passed on. As the interest rate came down, the profits that were marginal or negative shot up by 4-5-6 times because all the interest became benefits to the company. The stock flew from Rs 13-14 to around Rs 150 in 2 years time and then I sold it at about Rs 120. The stock further went up to Rs 400-500.

Markets continue to trade lower, bankex slips

Markets continue to trade in the red after opening lower due to weakness in banking and PSU shares. The Nifty declined 27 points, at 5,722 and the Sensex was down 74 points, at 19,065.

Selling pressure was witnessed in Bank Nifty; the index was down 1.8%, at 11,276 due to short build up of positions ahead of the monetary policy tomorrow. Economists expect 25-50 bps rate hike as food prices continue to remain at elevated levels.

Markets may decline further due to selling pressure in State Bank of India (down 3%), ICICI Bank (down 0.8%) and HDFC Bank (down 1.2%) which is dragging the Nifty down.
Navneet Daga, Derivative Analyst, KR Choksey Securities said, "options data is indicating a further decline on the index to sub 5629 levels and 5600 may act as support because it has maximum open interest build up." Daga added, "If Nifty fails to hold above 5750 on closing basis for next two to three sessions, we may see selling pressure getting intense in the market towards 5620 levels and a close below 5750 would lead to further long liquidation of positions."

Selling pressure was also witnessed in BSE PSU index as well, it was down 1.8%. Top losers were mainly PSU Banks-UCO Bank, down 6.7%, Bank of India declined 5.6% and United Bank dipped 4.6%.

BSE Consumer Durables shares continued to the lead the gains; the index was up 1.2%. Videocon Industries zoomed 2.2%, Titan Industries added 1.8% and Gitanjali Gems gained 1.8%. Investors are betting on the consumer driven sectors for the next led of rally. TS Harihar, Co-Head-Institutional Derivatives, ICICI Securities, “the next 10 years belong to consumer driven industries that will benefit from the spending power. Long-only fund managers are betting on consumer driven companies which will experience a multiplier effect on their bottom-line because of increasing demand and shifts in demand patterns."

From the broader markets, midcap and smallcap indices were down 0.5% each. Market breadth was negative, 1442 stocks declined for 982 stocks which advanced.

Asian markets inch up; Wall Street ends lower

Asian shares inched higher in early trade on Wednesday, while the yen may head lower as some investors said the position unwinding due to risk aversion would be shortlived.

Crude oil slipped, extending two days of losses after Goldman Sachs urged investors to book profits, warning for a second time in as many days of an increased risk of price reversal .

Tokyo's Nikkei rose 0.4 percent while South Korea's Kospi edged up 0.2 percent, led by exporters, although resource-related stocks weakened across Asia , taking a cue from the widespread decline in commodity prices overnight.

The yen slipped 0.4 percent against the dollar as some analysts said its gains this week were because of stretched positioning and may be an opportunity to extend their short positions.

Brent crude for May was down 0.1 percent at $120.77 a barrel, extending a $3 plunge overnight. The May Brent contract expires on Thursday. U.S. May crude fell 0.1 percent to $106.12.

US stocks dropped on on worries falling oil prices could set off a reversal in the high-flying energy sector, while Alcoa's leaner-than-expected revenue disappointed.

Energy stocks led the S&P 500's losses, with the S&P Energy Index down 3 percent. Strategists were already worried the rally in energy stocks may have gone too far ahead of earnings, and a drop in oil prices could spark an extended sell-off.

Signalling the start of the US first-quarter earnings period, Alcoa Inc late Monday reported revenue that missed forecasts. Its profit, however, topped consensus expectations. Alcoa's stock slid 6 percent to $16.70 and was the Dow's biggest percentage loser of the day.

Materials stocks in general fell in sync with declines in metals prices. Investors are worried that Japan's massive earthquake and a nuclear crisis could weaken recovery prospects in the world's third-largest economy.

The SPDR S&P Metals and Mining ETF fell 2.2 percent. The Dow Jones industrial average was down 117.53 points, or 0.95 percent, at 12,263.58. The Standard & Poor's 500 Indexwas down 10.30 points, or 0.78 percent, at 1,314.16. The Nasdaq Composite Index was down 26.72 points, or 0.96 percent, at 2,744.79.

The S&P Materials Index fell 1.4 percent while U.S.-traded shares of Rio Tinto fell 2.3 percent to $72.13. Freeport-McMoRan Copper & Gold Inc shed 3.1 percent to $53.70.

The day's slide broke some technical barriers, analysts said.

The S&P 500 fell below support at 1,320, and touched the rising 20-day moving average at about 1,310, according to Larry McMillan, president of McMillan Analysis Corp. in Morristown, New Jersey.

Composite volume was below average on the NYSE, Amex and Nasdaq, with 7.53 billion shares changing hands, compared with last year's daily average of 8.47 billion.

Declining stocks outnumbered advancing ones on the NYSE by about 11 to 4 and on the Nasdaq by about 10 to 3.

Realty stocks lead the mkts higher

Led by gains in the realty and healthcare sectors, the Indian stock markets opened the day on a strong note. The BSE Sensex is trading higher by around 151 points.

Asian stock markets have opened the day on a strong note. Singapore (up 1.4%), Hong Kong (up 1.3%) and Japan (up 1.2%) are leading the pack of gainers. However, China (down 0.4%) is facing selling pressure. The Indian stock markets have opened the day on a strong note. Stocks in the realty and healthcare space are the main gainers.

The BSE-Sensex is trading higher by around 150 points (0.8%), while the NSE-Nifty is up by around 35 points (0.6%). Midcap and small cap stocks are trading in the positive as well, with the BSE-Midcap and BSE-Smallcap indices up by about 0.7% and 0.9% respectively. The rupee is trading at 44.74 to the US dollar.

Auto stocks have opened the day on a good note. Mahindra & Mahindra, Maruti Suzuki and Tata Motors are the leading gainers. India's two-wheeler majors Bajaj Auto and Hero Honda are all geared up for grabbing a larger share in the profitable premium segment. Hero Honda has seen its market share in this segment dwindling in recent times. As a result, the management has decided to rollout strategic initiatives to recapture the lost share. Due to the intense competition, Bajaj Auto would have no other choice but to follow suit or else they would be at a risk of losing their market share in the segment. As per Society of Indian Automobile Manufacturers (SIAM), Hero Honda's overall market share is down to 54% as at the end of Feb 2011. This is down from 75% as at the end of FY09. To help boost its market share, Hero Honda plans to take on several initiatives that include setting up special dealer networks for the different categories in two-wheelers, offering better facilities for the mass market bike segment, and starting a used motorcycle business, which would be the first of its kind in the country. It is also looking at additional efforts like revamping its research facilities and creating different marketing verticals.

IT stocks have opened the day on a positive note as well with TCS, Mphasis and Infosys heading the list of gainers. According to TCS, the country's largest software services provider, the economic recovery of the US is faster than that of Europe. It expects strong growth in the US to offset the impact of any disruption elsewhere. Though Europe is lagging behind, it still remains a key strategic market from a business perspective. The European market accounts for about 27% of TCS's revenue, while the US market contributes about 55%. The Indian market contributes about 8-10% of the total revenues. However, the company does not expect any substantial growth in the domestic market. TCS has also confirmed that Japan's disaster has had a small impact on company.

TCS raised prices in the last quarter of FY11 as demand for IT services picked up in segments such as retail and banking, financial services and insurance. The company's margins have improved over the past six to seven quarters in a row by at least 500 basis points (5%).

By Equitymaster – India's leading 'independent' equity research initiative. Trusted by over a million members all over the world, Equitymaster is known for its well-researched, unbiased and honest opinions on the Indian stock markets.

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