Friday February 22, 09:00 AM
Event driven programming... |
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By Equitymaster.com
Post February 4, the Sensex has run up almost 250 points (a gain of 7.5%). HPCL emerged as the top gainer among Sensex stocks. The PSU group has a very strong contribution with MTNL (MTNL.BO, news) and BHEL (BHEL.BO, news) also chipping in. While this gain by PSUs is due to the divestment process finally translating into a reality, the surprise elements are stocks like ICICI (ICIC.BO, news) and SBI that have also gained significantly.
The financial sector in the country is plagued by low credit off-take. This is partly due to the institutions being conservative in their dealing and partly to due the industry's disinterest in big-ticket investment at this point of time. Especially, when India is increasingly getting integrated to the global economy and there is fear of foreign competition. The lower growth of advances has hurt the growth in earnings of the sector. However, consolidation in the industry, with foreign banks being now allowed to acquire Indian banks is driving the positive sentiment.
Also, Zee has surged after the news that the company had picked up a stake in the etc networks. What is common to all these stocks is that they have gained mostly due to speculation of a higher price being paid for the stock in some divestment or merger.
The list of gainers also includes companies HLL and Telco. These have gained on solid fundamentals, nothing other than performance. While HLL managed a strong performance for the fiscal FY01, which was considered to be tough, Telco has managed to turn around the fortunes of
its passenger car. Expectations of a revival in agricultural demand also seem to have seeped into the stock valuations.
Of course HPCL (41%), ICICI (32%) and MTNL (26%) have gained much more than Telco (18%) and HLL (13%). This is will undoubtedly tempt many to 'ride the wave'. Here retail investors should be very cautious and make a choice between event driven investing and value investing.
This is because trying to speculate on stock price can really get out of hand. Nobody had expected IOC to pay Rs 1,551 per IBP share. However, fortunately it worked for the investors and changed the entire PSU valuation matrix. For those willing to speculate, stock options could be of great use. A long position on stock options has limited risk and unlimited gains. This will give the investors leverage, as a lower amount needs to be invested. But please avoid writing options as it means that gains are limited while the downside is unlimited.
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