By Vipin Agnihotri
When the Sensex fell from 15,795 on July 24, 2007, to 15,505 at present its effect can be seen sharper in a few major sectors. It has come into the notice of The India Street that there is a re-rating of few sectors taking place on the street.
It is worth mentioning that a defensive sector such as FMCG, which is largely ignored in the present market boom, is showing signs of bouncing back. In my opinion, the market’s forward valuations are not over the top, yet not cheap either.
According to one estimate, Sensex is expected to clock an EPS of about Rs 840 in 2007-08, which results in a one year forward P-E of 17.7, down from its peak of about 18.8. Most of the experts are of the opinion that the subprime market woes will peak by the end of this year. Taking this into account, the next 3-4 months could witness more than abnormal levels of volatility. But one thing is for sure; the effects will wear out over the long haul.
In terms of statistics, the US subprime market is valued at $750 billion and the total outstanding debt in the global economy is $100 trillion. In other words, the subprime exposure works out to less than 1 percent of the total outstanding credit. In my opinion, it’s not significant enough to trouble the global economy and the time is not far away when the markets recover.
At this time, I recommend investors should increase the cash levels in their portfolios and improve the quality of the stocks they invest in. FMCG major Hindustan Unilever in my opinion will post steady revenue growth as core brands sell with a better pricing power.
No one will argue with the fact that subprime market fears have pushed banking stocks down, but at present they are quite a good option for investors. Large chunks of Indian banks don’t have any significant exposure to the subprime market. India’s second largest bank, ICICI bank is a good investment now.
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