Overvalued stocks: BOR, Axis, ICICI, HDFC, SBI, PNB, BOI and BOB
-In a widely expected move the RBI raised CRR and Repo rates by 50 bps on Tuesday night.
-PLRs will now rise above 16.75 per cent on average, making borrowings even more expensive for Real Estate and Capital Intensive projects.
-Advise Investors to short/outright sell all Real Estate stocks across the board, and all companies with big expansion plans in Cement, Steel, Paper and Petrochemicals.
-After having sold off all Industrials, get busy shorting SBI, HDFC BK, ICICI, BOB and BOI.
-With near 17 per cent borrowing costs, and a 11 per cent official inflation rate and nine months to go for FY09, the GOI is looking to pull back growth to about 6 per cent and not 7.5 to 8 per cent.
-Industrial profit margins already under pressure will further reduce and earnings growth will drop down to about 9 per cent for FY09 giving a Sensex earnings projection of Rs 900.
-Giving the Sensex companies a PE of 9, based on a 1:1 to earnings to growth rate, the Sensex should sink to about 8500 to 9000 by December 2008.
-Worse, All Banks are about to be hit by higher rates, non performing loans, higher provisions and lower growth.
-Valuations at 14 times FY09 earnings for State owned banks and 20 times for private banks, and 2 times Book are extremely stretched, with significant downside risks on earnings per share and return on capital employed.
-Banks Outperform only when GDP expands and Business Cycle is positive.
-Both Positives seen over the past 5 years are now reversing.
-Rising Inflation, Declining liquidity and rising interest rates will ensure that Banks show a sustained period of Under Performance.
-PE Valuations likely to contract to single digits, and Price to Book multiple closer to 1 to 1.4 times.
-Key Risks to earnings remain for high PE private banks led by ICICI, HDFC Bank, Axis, Bank of Rajasthan, BOI, BOB, SBI and PNB.
-All Banks and Real Estate stocks can lose 50 per cent of their market value over the next six months.
(Source: Internet)
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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