Has the giant woken Yet ?

The bulls seem to be surging consistently and we have seen a couple of gap ups in the index in the last ten days. Nifty managed to cross the psychological barrier of 5600 .The flurry of positive news gushed in with the ECB willing to buy back bonds to the QE3 infusing liquidity .In India, there were pleasant surprises too. The UPA government finally accelerated their reform policies. The delayed, but the well awaited FDI’s in Single, Multi- Retail and Aviation sectors finally got the nod .The diesel prices were hiked by Rs5 and disinvestment in 5 PSU’s were finally implemented to eliminate high CAD issues. These factors seem to have given sufficient boosters to the market to do some tango.

However, the question that surfaces is, whether would you enter the market at such high levels. Clearly it may not make too much of sense to the do the same. The FMCG and Pharma stocks, being the defensive stocks generally do not run along with the bulls. So which are the sectors that you would be able to capitalize in these times?

As we look at the reforms that have recently propelled and the valuations, the Infrastructure sector seems like a decent bet .The commodities like steel and aluminum are at its lowest valuations with very limited import liability. The domestic capacity of these commodities has been expanded, in turn catering to the expanding infrastructure needs of the country. The hike in diesel prices and cutting on subsidies in LPG will enhance margins of the oil companies. Infrastructure related stocks like IRB infrastructure, Power Grid Corporation, SAIL are all looking to rise steadily for some time.

Coming back to investments, how would you deploy funds in the sector? In the Mutual fund arena, there are ample thematic –Infrastructure Funds. Among those, the AIG Infrastructure and SBI PSU Fund seem lucrative, mainly due to the low valuations. These funds have barely seen momentum since the slump in 2008. The stock compilation is true to its theme. Funds like HDFC and ICICI Infrastructure can also be looked into. The deterrent being, it does not seem true to its theme but has heavy weightage on the Banking Sector. This sector is likely to do well with the RBI cutting the CRR rate 25 bps and general positive credit sentiment. The down side of these funds seems minimal.

This graph depicts the CAGR returns of the month August, 2012. The Infrastructure and Banking clearly underperformed in the month. The situation seems to have retraced to some extent. Another good bet is the Media sector Mutual Funds. The Sundaram Entertainment Fund and the Reliance Media Fund may give you some positive returns in the times to come with factors like mandatory digitization and 74 % permit in FDI for broadcasting.

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