Be prudent- Invest Wisely in 2009
2009- This New Year Invest Wisely!
Come New Year, it’s time to wear the thinking cap for investments. One of the good things about the current New Year is that expectations are at the bottom and hence, investors are happy to protect their capital than bracing up for high returns. While investors are being warned about the current downtrend and a prolonged bearish mood for equity and other markets, the message for the common man is, go slow on investments.
The outlook for 2009 depends on the following factors: India going or not going for a war with Pakistan; Easing of the cost of funds for industries by mid-year; the outcome of elections in May; Plans by companies for nuclear energy production using Indo-US civil nuclear deal; continuation of oil prices at current level.
As you would have noticed, the year 2009 has the potential of facing different kinds of risks and as a result, we should not expect great surprises or multi-baggers in 2009.
In a nutshell, we can zero in on the best investment strategy in the following way. If there is war, it is better to focus on sectors such as Telecom, Hospitals, Engineering and IT companies in the Geo Spacial Technology. If there is no war, it is better to focus on Telcos. In all scenarios, we can focus on pharma and healthcare companies, Office automation equipment, and Personal care sectors.
Irrespective of the choice of sector, this is not an year where you can pick your stock and stay invested for long. On the other hand, review of portfolio is a necessity and in fact, take a good look at your portfolio at regular intervals. The first such review should be made after the General Elections which could be around May-June.
In the second half of 2009, try infrastructure and housing companies as the prices will bottom out by mid-year. In metals, one can try steel and aluminium companies in the second half of the year as the input costs will settle at lower levels and new government would be coming out with infrastructure plans. The same logic also applies to capital goods sector but enter only after June.
So, the forecast for 2009 is very clear. A dull market is ahead and if you are thinking of any windfall opportunities, you can keep yourself miles away from the market throughout the year and take a long holiday from the market.
On valuations front, the P/Es (price-earning) of Sensex has come down to 11x. This is the lowest level of P/E post 2000. Some analysts feel that the current P/E level has even discounted the realities of coming three quarters. Though this level is considered by value investors as good entry opportunity, it is better to wait till good trend reversal is clearly visible. This may come in the fourth quarter of 2009 or may not come depending on the market situations at that time.
In IT sector, companies such as Infosys, Wipro and TCS are sitting on huge cash reserves. In recession, generally, companies with huge cash balances will plan well for future and get ready to encash the rebound in market whenever it happens. These companies will use these cash reserves to strategically buy companies abroad or for inorganic growth. They may also plan to diversify their product or service offerings.
Individual stocks to watch in 2009 are: RIL, RPL, Reliance Communications, Bharti, Idea, SBI, Rolta, HDFC Bank, Patni, Tech Mahindra, Jindal Steel and Power, IFCI, Hindustan Zinc, Sterlite Industries, BHEL. In addition to these companies, investors can also watch sugar and cement companies located in South India as they have locational advantages.
