Is equity still good?
When the markets were rising all analysts concluded, how robust and strong our economy is and how investors are missing an opportunity to create wealth if they were not buying equity. It took a fortnight of incessant fall in various indices and the facts have reversed. Now, there is liquidity crunch, bad loans, defaults, falling demand, rising interest rate, depreciating Rupee. Well, all possible reasons and some even unheard of have cropped up explaining the demise of equity. To call it demise is perfunctory. Yes, a semi temporary but a deep correction could be the right phrase.
The irony of retail investors or rather the dilemma is, he invests when market as risen considerably or sells after it has fallen considerably.
A retail investor with a perspective of more than a year should invest in this falling market, at least at these sub 12000 levels (Sensex) and do not bother even if the markets corrects further down from here. Large investment houses are under pressure to show profits or need revenues; they will ride the volatility. In these attempts of theirs, market might correct further. The long term retail investor should stagger his purchases in smaller quantities and average is buying price at every fall.
Equity of the day: HCL technologies
Last week I came across articles on HCL Technologies being a good buy. It may be, but my evaluation puts the equity at Rs.220 FY09, so see what percentage profits you need and discount it to arrive at your comfortable buying price. I would recommend sub Rs.180 level.
Their acquisition of AXON group would give them new business of enterprise solutions which, is competitive enough and in these times of cost cutting an established player in this segment is a better bet as there is acquired learning and cost advantage. Anyways an opportunity to enter into new product segment where one is week doesn’t mean instant success. So it is advisable to wait and watch how the deal unfolds and how the business scenario is changing. I wouldn’t know the impact of this acquisition on HCL technologies’ books. If the acquired companies ROCE is same like HCL then it is not a big achievement and the price of Rs.220 FY09 is good. But I seriously doubt this given the cost of acquisition. They are already in talks for raising a debt of 400 million pounds (Rs.3400 crore approx). Therefore, a sub Rs.180 level in this falling market for HCL Technologies makes me comfortable.
Santosh Shetty
