When intelligence and Innocence go together a beauty dawns!
- Sri Sri Ravishankar, Indian Philosopher
What makes a stock/index beautiful? High earnings (intelligence) and Inexpensive Valuations (Innocence)!
The Indian Budget is structurally EPS accretive for Sensex because by offering liberal tax breaks/increasing diposable incomes in the hands of Indian consumers and thereby boosting consumption, AND by seeking to bring down inflation by cutting duties it has paved the way for higher revenues and earnings growth for Sensex Companies.
On the other hand, the Sensex has shed its rich valuations due to sharp fall in the market owing to global concerns.
Sensex at 16339 now trades at 15.6X FY09 (EPS est Rs.1050) with good prospects of earnings upgrades due to budget impetus. Year to date, it is down 21%. What an anomaly? The best hedge against US recession - in fact US recession could usher in the 2nd innings of the India Growth Story - is one of the worst performing markets in Asia this year!
Astute investors who are sitting on cash should now rush in to buy, because there is very little downside. The world is already preparing for a US recession - being forewarned is being forewarned, isn't it?
Soon, the global markets, in my view, will start building expectations of positive impact of a sharp (75 bp) rate cut by FED on March 18 (thus far it focused on the negative causes forcing the rate cut and the impact on US$).
Be that as it may, the Indian market is now looking extremely attractive on both fundamentals and valuations. Time to Buy.
Buy Reliance Industries, ICICI Bank, State Bank of India (the entire basket of PSU Banks now provides great value), Maruti Suzuki, Mahindra, Bajaj, Hero Honda, Reliance Communications, Bharti, DLF Universal & Larsen.
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