Rally in Indian market has coincided with rally in emerging markets and with appreciation in Rupee-Dollar rates. Even when one sees intra-day market a perfect co-relation is happening with Rupee-Dollar rates and Nifty. Though such perfect co-relation seldom lasts in financial market, they still serve strong data point for keeping track of the market. In the month of January equity market across world have seen a rally, more so in emerging markets. Indian markets have gone up by 11.24% in January; Brazil went up by 11.13% and Hong Kong by 10.6%

Right way to look at the current price trend is that Risk-on trade is happening across emerging market. Appreciation in rupee is due to surge in FII flow in emerging markets across world. In last one and half month, whereas Indian Rupee appreciated by 8.7%, South African and Brazilian currency have appreciated by 9.3% and 8.3% resp in the same time.

Coming to specifics on equity market, rally of January 2012 once again establishes the futility of timing the market. An investor should ideally be 100% time invested barring the time when some bubble like condition in terms of valuation prevails. Timing the market when market is trading around fair value or below fair value is highly risky and one can easily miss such excellent rally like the one we had in January.

In terms of fair value, we have rolled over our value estimate from the base of FY12 EPS to that of FY13 EPS and accordingly our fair value estimate for Sensex has gone up from 15,950 to 17,090. 

Coming to short term view on the market- on going result has seen bit of improvement as far corporate performance are concerned. Sensex EPS has seen continuous downgrade over last 5 quarters and for FY12, Sensex EPS expectation before result was 1105. Now with result of 18 companies of Sensex being declared, Sensex EPS stand revised to 1110 and suggest that downgrade cycle is over. Though in broad market sense, analysis of 500 companies that has declared their results- margin declared is still at multiple quarter low though pace of fall in margin has reduced considerably.

Though state of pessimism during December and skepticism currently, suggest high probability that a new bull market has emerged. However only strong policy move in next few months by the government and clear indication of margin expansion for Indian companies in Q4FY12 will only establish the same.

Coming to results declared during last week, ICICI Bank reported better than expectation results. Our fair value Estimate for ICICI Bank is Rs 1125 at 2.1 times FY13 E Book value. ICICIBANK remains a safe buy on every correction.

 

In contrast BHEL results were discouraging and depicted the poor ground condition of economy as far as power infrastructure is concerned. Net order inflows for 3Q12 stood at a negative Rs19.4 bn due to Rs58.5 bn worth of orders cancellation of a large private sector order. With this order inflows for 9M FY12 stood at Rs152.7 bn (down 59% YoY). We remain neutral on the stock till budget session of the parliament waiting for policy clarity from government front.