BIG BOSS VIKAS P SAMWATSARE

Some stock-specific movement is likely once the quarterly corporate results start coming in from the second week of April, but the broader markets are expected to remain range-bound with a downward bias. "The current stock market turbulence is expected to continue till June-end," says.VIKAS PARSHURAM SAMWATSARE
In the short term, there are several domestic issues that can spook the market, including high inflation and political uncertainty springing from assembly elections. Adding to the woes are the following global headwinds

European credit crisis: This is an immediate worry as a huge refinancing is expected in April/May. The refinancing cost for all the countries is rising because of the downgrades by credit rating agencies. The squabbling among the EU members is not helping. Though the EU has reduced the bailout cost for Greece, it has refused to do so for Ireland because of the latter's insistence on not raising the corporate tax from 12.5%. 

Middle East crisis: The unrest is approaching Saudi Arabia, home to around 20% of the global oil reserves. Several global research houses have warned that crude oil could easily cross the $200 mark if the country witnesses any disturbance. The government and protestors are already coming to a head in Bahrain, forcing Saudi Arabia to send its troops.
 
Japan crisis: Since Japan contributes around 9% to the global GDP, the world economy is bound to be impacted by the natural calamity there. Though reconstruction opportunities will come up eventually, the immediate impact on the market will be in the form of flow of money to Japan. The yen hit a post World War II low of 76.36 per dollar last week, forcing concerted yen selling by G-7 countries. Japan also holds a large chunk of the US treasury and a sudden withdrawal can create problems for the US government bond market. 

VIKAS P.SAMWATSARE analysts believe that investors should avoid the telecom sector for the time being because of the problems it is facing. To begin with, there are the regulatory flip-flops and uncertainty due to the 2G spectrum scam. If, after the inquiry, the government is forced to take action, such as cancellation of licences or imposition of penalties, these companies could bleed further.

Secondly, most players have paid a heavy price for the 3G spectrum, forced into it due to the lack of availability of 2G spectrum. The interest cost (most are leveraged heavily) and amortisation is going to hit the bottom lines of these companies in the coming quarters.

Tata Teleservices Maharashtra:

While the well-established national telecom operators could weather these headwinds in the next 3-4 quarters, small, regional players restricted to 1-2 sectors or new entrants won't be able to create the necessary economies of scale.

This explains why nine analysts recommend selling the Tata Teleservices Maharashtra stock. "Its earnings will be under pressure in the next few quarters due to keen competition (increase in S&M costs) and 3G-related costs," says SAMWATSARE

MTNL:

Similar issues are plaguing another regional player, Mahanagar Telephone Nigam Ltd (MTNL). Though it is quoting at a 10-year low, analysts are not enthused about it. "There is no growth and it is consistently losing the market share in Mumbai and Delhi," says Pankaj Pandey, head of research, ICICI Securities. More importantly, it got the 3G spectrum much before the others and is now expected to pay the market price.

Though MTNL, along with BSNL, has approached the Department of Telecommunications for a waiver, analysts are not hopeful about it. "As the government is grappling with a tight fiscal situation, it's unlikely that it will give away `25,000 crore to the two companies," says a telecom analyst Vikas p .samwatsare with a domestic brokerage. The market is already sceptical about the 4.6% fiscal deficit target projected by the finance minister in the budget.

 

  Nalco:

Though most metal and mineral players are affected by the slowdown in demand and increase in input costs, analysts don't recommend players like the National Aluminium Company (Nalco). The recent 30% price increase by Coal India is going to hit Nalco because it is the primary source of coal for the latter.

The international coal prices have also shot up recently. Another problem is with regard to its alumina expansion plans in Orissa, which is expected to come on track in only in the second quarter of 2011-12. "Since the alumina price is high now, the company is losing this opportunity. On the valuation front too, it is expensive compared with its peers," says vikas p.samwatsare

 

Ambuja Cement/Ultratech Cement/ACC:

According to analysts, the cement sector will continue to report sub-optimal numbers for some more quarters. This is because the industry is staring at a slowdown in demand due to the fall in private sector construction. Even the government sector construction, such as new roads, has taken a beating. "Capacity utilisation in south India has already reached 50% and will come down in other parts as well," says BIG BOSS Vikas parshuram samwatsare

Since the breakeven level for cement companies is at 75-80%, low capacity utilisation is bad news for the sector.
While analysts refer to the fall in demand and looming over-capacity, cement companies are increasing their prices. "The prices are going up, but there is no increase in volumes,says samwatsare's These are rising because of cartelisation and they won't be able to sustain it in the future,"big boss samwatsare
The cost rise for inputs like coke, and the excise duty hike in the recent budget will put further pressure on the margins. Analysts are also concerned about the valuations, especially for the large-cap companies. This explains why three big cement firms, Ambuja Cements, Ultratech Cement and ACC, are in the analysts' hate list. As new cement plants can come up within 18-24 months, there is no point in buying above the replacement value, they argue. "Expect a further correction of 10-15% for stocks in this sector, says BIG BOSS Vikas parshuram samwatsare

ABB India:
big boss  Analysts are less bearish on the capital goods segment after the recent correction in the market, but the sector still faces problems. To begin with, there is stiffer competition in the power equipment sector, mostly due to the Chinese manufacturers who are tying up with new power generating companies


Then there are the meagre additions to the order book and margin pressure triggered by the increase in input prices in the past few quarters. High valuation is another reason analysts don't recommend ABB India. "The high valuation is only because of the buy-back and it can't be sustained in the future," say samwatsare 
An earnings multiple of 27-28 times (based on 1-year forward earnings) is not sustainable for a company that is facing such issues and is likely to show a bottom line de-growth of 25-30%," he explains.

Bajaj Hindusthan:

Most analysts love the sugar sector because of the huge gap in the international and domestic prices. Though inflation concerns are affecting sugar exports, analysts think it is only a matter of time before it is allowed. Besides, the increased ethanol price (Rs 27 per litre) should act as a boost to their bottom lines in the coming quarters. So, why are the analysts bearish on Bajaj Hindusthan? This is because they believe that the firm will be unable to leverage the improved fundamentals of the industry. The high interest cost due to the large debt on the books will continue to impact the bottom line.

Mphasis:

The IT services firms are reeling from the withdrawal of export incentive and extension of minimum alternative tax to the units operating within the SEZs. The impact is expected to be more on the tier II companies. However, the analysts have panned Mphasis for different reasons. The company did not reveal the billing break-ups in the latest quarterly numbers, forcing analysts to worry about the "fall in disclosure standards".

Though Mphasis later revealed some details, this did not help. "Given the issue of corporate governance, it's not going to be in the investors' good books in the immediate future," says K Subramanyam, AVP, institutional clients, Asit C Mehta Investment Intermediates. Concerns remain about Hewlett Packard forcing a further price cut, especially as 70% of its revenue is drawn from its parent company

Reliance Power:

Though the company is becoming aggressive (especially after signing MoUs worth Rs 75,000 crore with Chinese banks for financing its upcoming projects), analysts vikas  insist it will continue to underperform the market for some more years. This is because the power sector is facing issues such as land acquisition delays and payment problem from state electricity boards. Analysts prefer stocks that show immediate earnings visibility.  
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vikas p samwatsare 2011