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Technical Investment Methods - Analyzing market trends with technical methods.
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Posted by ronald.chis@googlemail.com on June 14, 2008, 2:39 am
Which sectors to invest in?
The markets have been volatile. One day they are up, and the next day
they fall. The consistent uptrend in the Sensex seen a few months ago
has not been there in the recent weeks. This has eroded huge amounts
of investor wealth. Also, it has taken a toll on the confidence of the
small investors. Many of the recent IPOs are again trading at below
offer prices.
All said and done, there are some sectors, which look good from an
investment perspective. The recent reduction in excise duty on several
sectors/products will boost consumption. The sectors which look good
include infrastructure, education , metals, healthcare, hotels, auto
and pharma. Long-term investment decisions need not be a knee-jerk
reaction to the market movements. The investment approach should be
proactive rather than reactive. Investors can wait for markets to
stabilise before investing.
Pharma
This will be a sector to look out for. It is already a beaten down
sector and there is no reason for further downfalls in this sector.
Recently, there has been a cut in the customs duty on life-saving
drugs from 10 to five percent. This would reduce the cost of drugs.
Lower duties might spur an increased off-take of formulations , which
is a positive for the pharma sector as a whole.
Excise duty on all drug formulations has been reduced to eight
percent, from an earlier 16 percent. Companies that have no presence
in excise-exempt zones and had to shell out excise duty will now have
some relief on this expense. Smaller players as well as domestic units
of multinational companies will benefit from this.
A cut in excise duty reduces healthcare costs rather than the tax
outgo of medical equipment/accessory companies. On certain specified
life-saving drugs and on the bulk drugs used for the manufacture of
such drugs, the customs duty has been reduced from 10 percent to five
percent. This will help MNCs which are key importers of such drugs.
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Power
Another sector to watch out for is power. The demand for power is
increasing and the supply is limited. There is a huge potential for
the good power sector companies . In the budget, the Finance Minister
had announced a 'Transmission and Distribution Reform Fund' and
setting up of a coal regulator. The general project import duty has
been reduced from 7.5 to five percent . The creation of the T&D Fund
and development measures for the secondary debt market, which will
make long-term debt available for the power sector, will be huge
during the 11th Plan.
Auto and FMCG
Auto and FMCG companies are also good options. The excise cut for
packaging materials has been a positive for certain food processing
players in the FMCG sector. The budget had reduced excise for
packaging for food processors by half to eight percent.
The domestic auto industry got a major boost in the budget with the
Finance Minister announcing a four percentage point reduction in
excise duty on two-wheelers , three-wheelers , passenger cars, buses
and chassis to 12 percent from 16 percent.
The Government reduced excise duty on two-wheelers to help the segment
revive after witnessing months of declining sales due to high interest
rates. The Government also extended a similar reduction in the excise
duty of small cars to make India a hub for small cars.
Choosing sectors
With the retail sector booming, many companies have tapped the markets
recently and are available at good discounts. One can include these
stocks in the portfolio. For trading purposes, investors should buy
stocks of specific sectors since not all sectors are performing
optimally. There are some laggards and some sectors will outperform
the market. Buying into corrections of stocks that are currently in an
uptrend should be a preferred strategy. And there will be some good
opportunities to short stocks that are in a confirmed downtrend.
Stocks in the auto sector provide a very good trading opportunity on
the long side. Frontline construction and infrastructure companies
also seem to offer a good scope for appreciation.
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