Party’s over for the analyst community

When the Sensex moved from a level of 3,000 in April 2003 to a dizzy 21,000 earlier this year, it was an unbelievable good time for
anyone involved with the markets. One such benefactor was the analyst community. That was then.

Today’s scenario with the Sensex being at around half the level down from that peak has left a lot of people in a quandary. The analyst community has been one such affected party. Five years ago, an equity analyst needed an MBA and a good reference. That was good enough for a job at a domestic broking house.

Typically, an analyst would spend a year before another broking house would grab him at an impressive hike — often twice as much. If things went to plan, in three years, the analyst would find himself inundated with offers from foreign broking outfits at mind-boggling salaries. Clearly, the journey to 21,000 fuelled a lot of ambitions and the mismatch between demand and supply was working overtime.

Meanwhile, broking outfits wanted research analysts to recommend stocks to their clients. This in turn would generate brokerage income for them. It was the large research team that owners of broking outfits would use as the selling point to prospective private equity investors. The effort seemed worthwhile for the analysts since the money was coming in.

Typically, an analyst with an experience of three years would command an annual salary of Rs 10 lakh and one with around twice that experience would draw as much as Rs 15-20 lakh. This was as far as domestic broking firms were concerned. If one was to head to a foreign firm, the salary would be twice as much as what was being made at the domestic broking firm.

That story is hugely different today. “Many analysts came back to their own company after six months at double the salary,” says an industry observer a little wryly.

With cost cutting now the buzzword, broking outfits are looking closely at equity research which is a huge cost centre. Today, with some sectors such as real estate being under intense stress and even mid-caps going off the radar, research analysts in those segments will lose favour.

There is a school of thought which looks at analysts a little sceptically. “Most of them form an opinion after meeting the company management. Very few of them bother to talk to clients or rivals of the company,” says a fund manager with a domestic fund house. That’s not the end of the story. “Not many analysts have seen multiple bull and bear cycles,” says Churiwala Securities managing director Alok Churiwala. With the demand-supply scene easing off now, it may be possible to obtain some quality analysts.

A broker looks at the weakness a little differently. “Not many were able to identify a stock in advance,” says a broker
. He says the idea comes from the superior in the office which was followed by some number crunching. Some of them made fancy presentations to fund managers to generate business for the fund house. There are many such instances.

A leading foreign broking house in April upgraded its target price for Suzlon from Rs 290 to Rs 380. Another foreign outfit in early March had a target of Rs 450 on the stock. The stock currently trades at Rs 65. There are similar stories for a lot of other mid-cap companies. Industry watchers, say analysts, often have no explanation in such cases.

The downturn in the market has separated the wheat from the chaff. Broking houses that are serious about the business would try and retain its people and also get an opportunity to choose from a large pool. It does look like there will be semblance that will come in sooner than later.

Hold Axis Bank for long term

Fundamentally Axis Bank looks okay at the current levels; it’s quoting at about ten times March ’10 earnings and about 1.5 times March ’10 book value. But the FII (Foreign Institutional Investor) holding in this bank is about 28%. So in the short-term it could be a drag on the stock because some of the FIIs continue to do relentless selling and that could see even Axis Bank stock also been dumped. So fundamentally its fine, one can hold on for a longer period of time but in the short-term on account of high FII holding maybe the stock could drift a little from here."

Pharma, FMCG look safe: D Mehta

Published on Fri, Nov 14, 2008 at 16:18 , Updated at Fri, Nov 14, 2008 at 16:23
Source : CNBC-TV18

Dipan Mehta, Member, BSE/NSE is of the view that pharmaceuticals and FMCG is looking safe at this point of time.

Mehta told CNBC-TV18, "There are a few defensives sectors and the one that comes to my mind instantly is Indian pharmaceuticals given that they benefit from a depreciating rupee. At the same time the prices over there, product prices have not corrected as much. So we could see that volumes remaining stable for that segment and profit margins moving on account of better gains on the foreign exchange currency side, so that seems to be a safe sector at this point of time. Also FMCG is also something, which seems to be pretty stable at this point of time. We have seen decent results coming out for the September quarter for most of the FMCG companies. So these are two sectors, which appear to be safe at this point of time and investors could park and be overweight in these two segments."

Disclosure: It is safe to assume that analyst and his clients may have an investment interest in the above stock/sector.

Religare Hichens puts 'accumulate' on Reliance Petro

Religare Hichens Harrison has said that Reliance Petroleum's (RPL) state-of-the-art refinery is slated for commencement by end-2008 with
a capacity of 29mtpa (~580,000bpd), making it the sixth largest plant in the world. The refinery has a Nelson complexity of 14 – much higher than 11.7 for Reliance Industries' existing plant – and can process heavy crude types up to APIs of 17.

However, the brokerage
highlighted that about 8.8 million barrels per day of new refining capacities are expected to come on stream between 2008–2013, particularly in China, India and the Middle East.

Further, growing concerns of an economic slowdown are leading to lower demand for gasoline and petroleum products, which would keep refining margins under pressure.

Religare Hichens has a target price of Rs 97 for RPL, and has an ‘accumulate’ rating on the stock.