3 stocks touching 7 year low, keep watch to invest
14 Jan 2016
The Indian Stock market is passing through bearish phase and once again the reason is external factor and this time it is the Chinese economy. Chinese stock markets have hit the lower circuit twice last week and has triggered the global sell off. Chinese government that devalued their currency Yuan and still international analyst are predicting that if they do it again in future then there would another sell off across markets in the world. The another reason the crude oil prices are declining and currently there are below 12 year low. Though low crude oil prices have both positive and negative effect in Indian market/economy. The benchmark index, Sensex, is already trading below the psychological support level of 25,000. While the broader market indices are trading close to 52-week lows, several stocks have hit multi-year lows. And, many of them have breached the levels hit during the financial market crisis of 2008-9, the period when Sensex hit an intra-day low of 7,700. Most of these companies are either from the commodities segment or from the banking and financial services sector.
The key question rises here is whether can we pick these stocks? The honest answer for this is if you are long term investors and willing to hold for 4 to 5 years and expecting excellent results then invest 50% of your capital and remaining 50% if stock prices decline further. Because, China, the biggest commodity consumer, is reeling under an economic slowdown and this is creating a global panic in commodities so if Chinese economy becomes jittery then you can add few more stocks at lower prices. For example if you are planning to invest then buy stocks of Rs 5000 in stocks in different sectors like few in commodities, few in banking and remaining in financial sector.
NMDC: Global iron ore prices have crashed from around $190 (around Rs 8,550) per tonne five years ago, to around $40 (around Rs 2,550) per tonne now. Lower demand from domestic steel manufacturers is another problem faced by NMDC. However, it is a zero debt, cash-rich company with Rs 18,000 crore worth of cash and investments-its market capitalisation is around Rs 35,000 crore. So, investors can plan to buy this stock. In addition to this, the stock is consistent dividend player. Its current price is Rs 88. Cairn India: This company is used to getting market rates for its crude oil output. Unlike its PSU counterparts, it didn't have to share the subsidy burden. Due to this, the crash in crude oil prices has had a much sharper impact on its financials. For instance, Cairn India's net profit for the second quarter of 2015-16 was down 70% year on-year and 19% quarter-on-quarter. The Brent variety of crude oil fell 18% in the last one month and is now trading at close to 11-year-lows of $33 per barrel. It is not possible for crude oil to remain so low so once the prices start recovering this is the stock going to run. Given the crash in crude oil is continuing, expect poor numbers in the coming quarters as well. Its current price is Rs 123. Aban Offshore: The company is into oil drilling and exploration. So if the crude oil prices are making new lows and currently at 12 year low then we cant expect the stock price of Aban Offshore to go well. The impact of low oil prices and lower renewal rates for the rigs will continue to hog Aban Offshore in the coming quarters. For example, renewal rates for Aban's two rig contract with ONGC was 11% lower compared to the previous contract. Also due to Aban's huge debt pile, servicing its interest and debt repayment obligations would be another challenge in the medium but again in long term the company stock price is expected to recover and provide good returns. Its current price is Rs 200