Portfolio for New Year 2006 ...

Hi nkp

Steel sector outlook is pretty negative for the year 2006 going by the reports and also by facts and figures supplied,including china being net exporter, prices of steel hovering around JAN-05 level with some downside possiblity.

However the market is so overpriced going by FY06 earning estimates. Most of the stocks are quoting at average PE of 25 and above. There is every chance that the market will go to 88xx level.

What do you think of defensive investment in steel stocks as their prices are being hammered down with abysmally low PE of 3-5? Historically, steel stocks and commodity in general has low PE.

Particularly SAIL comes to my mind. It will be available at around its 52 week low prices or 47. Dividend declared last year was Rs. 3.3 per share i.e. it will give return of 6.6% tax free ...not a bad idea at all if one is certain thatsteel sector will not tank any further though It has underperformed so far.

The reason being :-

1. it is the largest stell maker in india and with merger os issco becomes integrated player and hence ore and coal price fuctuations may not have much impact on its bottomline.

2. It is the psu about which there is no talk of privatisation at present. But in a year or two it is going to happen and then it will be re-rated.

3.FM P. Chidambaram, well known as PC, has asked to declare higher dividend so that Government can bridge fiscal deficit to fall in the line of Fiscal Responsibility and Budget Management ACT 2003 which requires the Govt to reduce the fiscal deficit by 0.3 per cent of GDP each year, and the revenue deficit by 0.5 per cent each year, beginning with this financial year. If this is not achieved through higher tax revenues, the necessary adjustment has to be made by cutting expenditures.

4. Economy is still growing and infrastructure sector is set to increase pace. Without steel there can not be any infrastructure story.

5. If the ore prices continue to increase then Govt may impose export restrictions in FY06 which will reduce the domestic prices of ores and again help steel makers of which SAIL may be beneficiary. If there is less availability of ores china might be forced to reduce production or increase cost of steel to meet the additional expenditure.....??? I am though not too sure about it???... Hoevever there are reports that chinese govt has asked steel makers not to expand capacity and not allowing new steel plants. China is a huge importer of ore to feed its mammoth production capacity.

In view of the above I feel that whithin two years SAIL may be re-rated to give better returns.
However in the current scenario one has to have a heart of steel to go contrarian.

I would like to have your considered opinion as this sector is much neglected in this forum

Regards

Pankaj

Hi nkp

All frontline stocks and what a good pick. One should wait for correctionto be over to get into these stocks. I think it will last for another 10 trading session and might go to 88XX level. After Jan outlook will pickup and will be driven by budget and news flow till feb end by that time dividend declarations will start and continue till April. March end may see the sensex touching 10,000 ( hope so... )

In the portfolio Wipro should be included
M&M, Bharti, ITC, SBI,NALCO has better outlook in my opinion. hope you agree.


Reliance,ongc and infosys will continue its progress without being disturbed by the market too much.
Regards
Pankaj

Sorry for not being active due to work. Just a quick update. Any member if after reading above post has bought NALCO can book the 50% profit as it reached 306 (>30% from reco price).
cheers,
nkpanjiyar

Everything is fine as long as the Rupee appreciation is kept under check. Pls do consider that at present US accounts major part of the revenues. Only recently has the company started concentrating other countries like Europe & Jan where the company is expecting to grow aggressively over next couple of years. Only when this de-risking is in place and see the effects on the balance sheets then surely Wipro is buy.
Look at the US Economy's 4th quarter growth. It is lowest in the recent past history. Just 1.1%. There are reports huge trade defecit, budget defecit. Take a call on the stock keeping in mind the whole picture. Take a macro view. Ultimately it is retail investors like us who bear the brunt of the stock meltdown. Exercise caution after you buy. Keep tight stop loss to protect ourselves from the big players. For now i would defenitely keep away from IT stocks.Happy investing.

hello frnds

will like ur views on ivrcl nagarjun construction and ptc