Sailing the Way

This ongoing stock market rally has completely baffleed me. There isn't any fundamental reason for market to move the way currently it is and so I was bearish since 4700 Nifty and have being proven completely wrong.

All the asset classes are rallying in a way it has never happened before. Gold prices are rising because US dollar is loosing its strength against Euro and this is happening because people believe that the excess liquidity infused will definitely lead to inflation in coming months and so a weakening dollar and the demand for gold is increasing as a hedge against inflation.

But text book fundamental says that if people anticipate inflation then the treasury yields should increase and gold should rise and equity should fall. The former two is happening but only GOD knows why the equity is not correcting. If the theory is correct and the same things have happened in the past, it should happen in the present also. Inflation expectations and equities can not rally together.

As the market direction is not clear I would not comment more on that. However I believe that stocks or sectors which have not joined the current rally should definitely perform. One such stock is Great Eastern Shipping.

The company is India’s largest private sector shipping company with excellent fundamentals. The stock despite having high ROE, ROCE and margins compared to its peers is only trading at a P/E of around 3.5 and only 0.8 times its book value. It has a good dividend paying track record and currently the dividend yield is around 3%. The sector has immense potential since with the the recent surge in the global economic activity, followed by the rise in the India’s industrial production index could lead to a higher demand for the shipping activity.

I strongly believe that this is a value pick and should be added on the dips for an investment horizon of around 1.5-2 years.

Please use the link below to access our group's recent report on GE Shipping.


http://www.scribd.com/doc/19964042/KBSL-GE-Shipping