By Chaahat Khattar

Edited by Madhavi Roy, Senior Editor, The Indian Economist

A new year, a new beginning and things will change. Somewhere deep inside, each and every person believes this saying. The world, in general follows the calendar year, which indicates 1st January as the start of a new year. But in a diverse country like India people celebrate their new year on different occasions. Like for many Hindus, the New Year begins during the summer. However, for the Marwari and Gujarati community, it starts during Diwali.

People of these two communities generally dominate the stock market, hence, every year, Diwali assumes a special place in the stock market and the trading is considered to be “Muhurat trading”.

“Muhurat trading” is basically nothing but a session that opens for an hour and a half for trading. Muhurat means an auspicious moment to start something new. For years, Muhurat trading has become a tradition in the Bombay Stock Exchange and other Gujarati and Marwari stock broking communities. The sessions mark the end of the traditional financial year and the beginning of the new one. The general feeling is that people seek blessings of Lakshmi, Goddess of wealth which will help them in wealth creation.

Since last Diwali, the Equity market has rallied over 25%. The reason behind has been large corporate earnings, expectations of tough reforms from the Modi Government and reviving macroeconomic variables. The Indian Government’s proactive confidence building steps, like allowing FDI in several sectors and the railway fare hike, have largely fuelled the rise.

Further, it’s been complemented by robustness in the economic data point. The GDP growth has revived to a nine quarter high of 5.7%, strengthening hopes of an economic turnaround. Next comes the softening of Crude oil prices where it’s at a 27 month low of 88$ per barrel, which would help balancing the current fiscal account.

Current rally marks an odd trend wherein investors prefer a sector linked to a capex cycle revival, but have not opted for a blank sector rotation. Excellent growth has been noted by consumer durables, banking and automobiles within a range of 40-55%, whereas FMCG has underperformed with only 10% appreciation. Healthcare and IT sectors have done quite well for themselves with a growth percentage of 47 and 29. Though we cannot ignore volatility, however, India with its emerging market will remain a sweet spot and will continue to attract global investors.


 

MUHURAT TRADING SESSION FOR THIS DIWALI

Pre Open Session

  • Order entry period

 

  • Order matching & Equilibrium price determination

 

6:15 p.m.

 

6:23 p.m.

6:23 p.m.

 

6:30 p.m.

Continuous Trading 6:30 p.m. 7:30 p.m.
Closing 7:30 p.m. 7:40 p.m.
Post-Closing 7:40 p.m. 7:50 p.m.
Top Picks for Diwali
Axis Bank
Bank of India
ICICI Bank
State Bank of India
UltraTech Cement
India Cements
Mangalam CementRallis India
Goodyear India
Exide Industries

Axis Bank is expected to grow at a CAGR of 17% over the FY2014-16E.  As per the evaluation by Angel Broking, Axis Bank remains a recommended buy this time.  Bank of India is expected to narrow the valuation gap by improving fundamentals.  ICICI’s expansion in the branches, along with a strong capital adequacy at 18.3%, has positioned it to gain and credit market share.  Also, The State Bank of India has been consistently managing a market share of 16-17% in both deposits and advances, making a positive sentiment to buy.  With positive prospects for the automobile industry and Gold, banks look a positive investment opportunity.  Banking is one of the preferred sectors as this plays on the overall revival of the economy.  With WPI inflation hitting the lowest in near 5 years, it looks like a positive sign for the FMCG companies to maintain costs, however, currently the prices are still on hold.

UltraTech Cement has been the most geographically diversified and a leader of the Indian Cement market with a market share of 17%.  Consistently the company has remained ahead of its competitors in terms of capacity expansion with a CAGR of 23%.  Also, the company has aimed to reach its total capacity of 70MT by FY2016.  As per the ICICI Muhurat picks, a pan-Indian forecast utilization of 78% by FY16E may offer a pricing power.  Considering this scenario, UltraTech Cement being the industry leader, this stock becomes a preferred buy.

Rallis India has been a major crop protection player in the Indian domestic market.  Also it has a notable presence in the contract manufacturing segment where it manufactures various chemicals and formulations for different reputed industry players.  Rallis possesses a relatively better working capital in comparison to the industry average.

Understanding the demand for the automobile industry, Goodyear India (GIL) has been a market leader, in the tractor tire industry.  Goodyear India Ltd. is a debt-free and a cash rich company and hence, is a recommended buy as the Tractor industry looks a promising segment in the automobile industry with a growth rate of 9%

Exide Industries is currently the market leader in India for battery manufacturing and also the largest supplier of batteries for passenger vehicles, motorcycles, trucks and tractors.  The company’s performance has been improving in the past couple of quarters.  This was seen after an underperformance of 3 years in finances, coupled with low utilization levels.   However, with the expectations of a strong pick-up in demand from the automobile sector and increasing levels of industry activity leading to higher volume levels and utilization levels, the profit margins are likely to improve.  With the expected increase in demand, Exide batteries becomes a recommended buy during this time.

Auto: the trend of the automobile sector is showing a significant growth from 2013 to 2014. We have the two wheeler market growth at 11.67% and tractor sales registered a growth of 9%. Moving on to government involvement in this industry, the Automotive Component Manufacturers Association of India (ACMA) plans to double the sector’s contribution to the country’s GDP  by 2016, by increasing its turnover to US$145 billion, in the process initiating a massive increase in employment in the sector. Hence, with the automobile industry shining, it is safe to say that the sector is moving in the positive direction.

Not just the stocks, but commodities also form a major chunk of the investments during this session.

Gold: Mid-October of this year has seen the gold prices revolve around ₹27000 per ten grams in India. The month of October has seen an upward trend in gold prices. Gold being the major attraction of the Indian crowd during this festival season, investing in gold before the month end seems like a good option.

Silver: Looking at the next most interesting metal after gold in the Indian markets, in the month of October, silver is being traded at prices that revolve around ₹38700. The fluctuations in silver also seem positive and the analysts quote that the market looks favorable till ₹39200 levels.

Crude: It’s a sad time for Saudi Arabia as the prices of the Brent crude oil don’t seem to move upward. The prices have been declining for almost 4 months now. The prices have hit its lowest at US$88 a barrel. These falls have been favorable for the countries in the importing end and the ones involved in the oil price hedging.

The other commodities that are looking at an upward trend are: aluminum trading at ₹118, copper at ₹420, nickel at ₹1005 and zinc at ₹143.

Therefore, this Muhurat session, expect a hike in the prices of major commodities like gold, silver as buying these precious metals is considered to be auspicious in nature. Further, the automobile sector expects the growth as well.

Due to the festive season being around the corner, the easy availability of loans to make luxuries affordable favors the banking sector stocks, and investment in the same may result to be profitable. Finally, infrastructure development is the key to developing a nation and the government’s prime focus has also shifted to heavy construction of roads and buildings which indicate that the cement industries will do pretty well. Since for ages, the Muhurat session is believed to bring prosperity and profits for the entire year, therefore, even with higher volatility, the market is expected to end on a positive note this year as well.


Chaahat Khattar is an ardent economist and is working with an international consultancy firm. He is an MBA and pursuing Masters in Business Laws. He is also a Harvard University alumnus and a certified financial modeller. He has keen interest and experience in authoring research papers and case studies and have contributed to various renowned journals. Chaahat can be reached at ckhattar@gmail.com

Posted by The Indian Economist | For the Curious Mind