Flat end to a lacklustre day

Tue, 28 Dec Closing

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Obsession with the break-even line continued well into the closing session and as a consequence, the benchmark indices ended the day on a flat note. While the BSE-Sensex closed a measly 4 point lower, NSE-Nifty was down by the breadth of a hair as it lost just 2 points. While BSE Midcap index toed a similar line, the BSE Smallcap index closed with gains of more than 0.3%. The advance to decline ratio was also split equally with there being nearly one decline for every advance on the Sensex.

Asian indices closed mixed today whereas Europe is trading strongly at the moment. The rupee was trading at Rs 45 to the dollar at the time of writing.

Notwithstanding today’s closing, the markets have had a reasonably good outing so far in 2010. Year to date, the Sensex is up around 15% and that is not a bad return. However, the question remains whether this performance will be bettered at all in 2011. The answer of course depends on two factors, the expansion of the P/E multiples and the growth in earnings of India Inc. Sadly, both these factors point towards the fact that above average returns may not be possible for the Sensex as a whole in 2011. But for investors who look hard enough, a few fundamentally strong bottom-up stories could certainly be theirs for the taking. Thus, as we head into 2011, it will be more and more of a stock picker’s markets according to us, unless a strong correction happens.

With decline of more than 2%, Tata Motors was the biggest loser in the auto space today. As we head into 2011, speculation over which auto major would outperform the rest of the pack has starting gaining ground. While we do not know which stock would emerge as the winner, Tata Motors seems a particularly safe bet to us. This is because the continued economic recovery in the developed world and sustained growth in emerging markets would keep the demand for its overseas subsidiary Jaguar-Land Rover (JLR) ticking. Thus, even if it were to face a tepid growth in its domestic commercial vehicle and passenger vehicle portfolio, the presence of JLR could bring in the much needed boost to profitability. Another stock that could prove to be a good bet could be M&M as its predominantly rural reliance would come in handy should urban centres decide to go slow on vehicle purchases. M&M closed marginally higher on the bourses today.

State owned refiners and marketers IOC and HPCL had a weak outing on the bourses today. This was perhaps on the back of news that the Government may not raise prices of petrol and diesel just yet as it could increase inflation further. That this is possible was reiterated further by the Prime Minister’s economic advisor, Dr. C. Rangarajan. "An increase in the price of diesel will feed inflation," he is believed to have said. Indeed, with crude prices threatening to go past the US$ 100 per barrel mark, the Government is contemplating increasing the prices of diesel. But in an already inflationary environment, any such move could further exacerbate the problem and deal a severe blow to the Government’s electoral prospects. In view of this, it looks unlikely that the policymakers will muster the courage to put economics before politics. Looks like the oil marketing companies will have to continue to bleed for quite some time to come.