Weekly Stock Market Outlook 05Sep11

 

 

``The monthly jobs report would be announced in the US today. Any significant increase in unemployment rate may attract selling pressure. There are no major market moving events in the next week. Though valuations are reasonable, it remains to be seen whether the rally sustains in the next week given pressure points like firm Crude prices, high inflation and softening of economic growth. In current times of volatility, we continue to recommend stocks with strong balance sheet, clean corporate governance track record and reasonable visibility of growth. For retail investors it can be good time to build a portfolio of quality stocks.``

 

 

Fundamental view: At the current level of 16,835, the Sensex trades at a PE of 14.58x FY12E earnings estimate and 12.22x FY13E earnings estimate. At 14.58x, we trade below average valuations of 15.4x 1 year forward earnings. However, with an aggressive 125bps hike in last four months by RBI and possibly more to come, a slowdown in growth is likely especially when world economy is turning weak. Against the overall macro scenario, earnings expectations for FY12 and FY13 (which have already seen downgrades), could see further cuts. In the short term, volatility will be high and therefore defensives are preferred over rate cyclicals

 

The underlying theme for our stock selection is strong visibility of earnings and cash flows. In the short term, volatility will be very high and hence a bottom up approach will work better. Therefore, we prefer stocks with strong management, strong cash flows and high earnings visibility. Sector wise, we believe risk reward remains heavily stacked in favor of defensive sectors. We thus continue to maintain our bullish stance on consumers, pharma and utilities. Simultaneously, the inflation growth dynamics are unfavorable for rat sensitive cyclicals. With the overhang of a persisting high interest rate regime, we are negative on financials, capital goods, construction, and real estate.

 

Technical view: On the daily chart, RSI continues to move northwards and weekly candle too has made a positive formation. Beside this on the hourly chart Nifty continues to formed higher top and higher bottom. Thus now on upside Nifty has strong resistance at 5095 and above that 5211 which are 38.20% and 50% retracement level of the recent fall from 5702 to 4720. However downside in near term now Nifty has support at 4966 and below that in medium term Nifty has support at 4777 levels.

 

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Disclaimer : This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. And not soliciting any action based upon it. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. We or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report

 

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