The Hindu Business Line : What to watch and do

MONEY-MAKING opportunities have been aplenty in the past three months in stocks. The risks may not be as obvious. But as ever, they lurk at every point and can only be ignored at one's own peril. In such a market, here are a few areas on which investors can focus:

Avoid Day-Trading: If you cannot afford high risk, stay clear of the temptation to indulge in day trading — even in low-priced stocks such as Hindustan Motors, Alok Textiles, Agro Dutch, SAIL, Essar Steel, India Cements, Ind Swift and Neuland Labs, to name a few.

Avoid obscure stocks: In the present market condition, even obscure stocks are starting to look up. This is a typical end-of the-bull-phase occurrence. A combination of operator-driven activity, word-of-mouth views on where the stock is headed and discovery of hitherto unknown positive facets converges to drum up support for the stock.

Quite a few stocks that were languishing at less than Rs 5 have doubled or trebled. Some of them may look attractive in the short term. But the temptation to delve into these stocks should be given the short shrift.

Book profits: A disciplined approach to booking profits is a must. Most mid-cap stocks are up sharply. The liquidity and momentum in the market can take them higher. But even a modest quantity of selling can lead to sizeable price declines.

Don't wait for peaks: Waiting to exit the stock at or close to the peak is a dangerous exercise, being difficult to call at the best of times. As and when you get it right, it may be more by default than design. If you have made returns of 30-50 per cent in this market, profit-booking should be seriously considered.

Do not rue: Once you exit a stock, it is quite possible it may go up. Two of Business Line's recent sell recommendations — Divi's and Sundram Fasteners — fall in this category. But to look at the gains missed can lead to problems in making `sell' decisions.

Yes, one is bound to miss opportunities. This is better than waiting and hoping that prices will keep moving. Have a target for returns and, if that is met, consider profit booking unless the circumstances warrant a total re-think. Steer clear of a buy-and-hold approach and cut losses if needed.

Go for a few MFs: If you have a small allocation for equities, direct investing may not be effective. More so if you do not track the market and/or do not have the discipline to handle procedural aspects in a timely manner. In such situations, go for mutual fund schemes.

The choice is very limited but you can consider Prima, Bluechip, HDFC Tax Plan 2000, HDFC Prudence, UTI Petro Fund and Alliance Basic Industries.

Strong auto drive: The story in the auto sector continues to be good — especially for auto ancillaries catering to the passenger and commercial vehicles segment. Stocks such as MICO, Bharat Forge, Premier Instruments, Sundram Fasteners, and tyre stocks such as MRF, Apollo Tyres can be held.

With passenger vehicles volumes rising by about 40 per cent in the April-June period, a significant (probably one-time) scaling up revenues and earnings may be likely.

Such growth rates are unlikely through the year. But it may spill into the next quarter and further gains may be in store. If you had these stocks six months to a year ago, partial profit booking can be considered. Mahindra & Mahindra, Punjab Tractors, Escorts and Tata Engineering also look set to reap gains with a good monsoon likely to help.

In two-wheelers, growth rates have faltered. But if rural purchases improve with the monsoon, growth rates may get a leg up. The three stocks — Bajaj Auto, TVS Motors and Hero Honda — have run up sharply and profit booking can be considered.

Stay with these: Stocks such as Indian Rayon, Grasim, India Cements, Raymond, ABB, ABB Alstom, ACC, Bongaigaon Refinery, Hindustan Petroleum, HDFC Bank, Dr.Reddy's, Cipla and Ranbaxy have had a re-rating. Growth and restructuring gains look imminent. It may be better to stay with such stocks.

Ride the themes: The two most dominant sector themes have been banking and power equipment stocks. Both appear to have run out of steam.

The return of capital by banks has become somewhat controversial on the pricing aspect and punctured the uptrend in PSU banking stocks. But select stocks, such as Bank of India, IDBI Bank and UTI Bank, look attractively poised at current levels.

In engineering, Cummins, Ingersoll Rand have upside potential. But in both these sectors, the run-up to existing levels has been sharp, and profit-booking opportunities have to be seriously considered.

Health upfront: In the pharma sector, frontline stocks such as Dr Reddy's, Ranbaxy and MNC majors such as Aventis, GlaxoSmithKLine, Pfizer are ones that are likely to retain present valuation levels and grow as well.

Second-rung pharma stocks such as Aurobindo Pharma, Divi's, Lupin Labs and IPCA Labs (a possible takeover story) have risen sharply and further upside can be used to lock into profits.

The monsoon may bring better tidings for FMCG companies. But profit growth may not be good enough to support prevailing valuations.

Wait for the monsoon story to play itself out before examining profit-booking opportunities in stocks such as Hindustan Lever, Dabur and Marico.

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