The fortnight gone by has seen an exodus of money from the stock markets.As I write this article ,the general concencus in the market is that we could correct to 12500 levels on the sensex.Please note that when we say the market will come down to 12500 we definitely will that all or a majority of sensex and Nifty stocks will correct handsomely in the months to come.But does this mean that the whole market will go into the dumps?.Definitely not!!.The concensus  also,recognizes the fact that there will be stock specific activity on the Buy side.

My favourite stocks I shall discuss a little later.But the market is still abound with stocks that offer value and are fundamentally strong.Ask you will,if these stocks will give you handsome returns in the days to come given the steep rise  in the sensex we had last year???.My answer would be an imphatic yes.And as for the sensex I can tell you that all said and done you can still expect a 14 to 15 % rise from the current levels probably by the end of this fiscal and more so in the second half of the year.It is not unknown in the market that savvy investors have made a fortune on the bourses even during reccesionary times and have successfully timed the markets too!.But hold on!! .We are getting too far ahead.Just consider the paragraphs below.

At the time of writing the S&P 500 was trading at 1103.31.Divide this by the consensus EPS of 76 for S&P and what you get is a PE Multiple of 14.52.CY10 is expected to give an earnings growth of approx 26% and we get a PEG of 0.56 for the S&P implying an upside of 44%.Sounds too good to be true?.Wacht the rallies that ensue mate!.

Indian market Gurus are right when they say that we have our own set of issues in the economy and for the markets directly or indirectly.The FII’s want the Govt. to tackle inflation and Fiscal Deficit head on.S&P has threatened to cut India’s sovereign rating if the problem of fiscal deficit is not tackled urgently. The demon of food inflation looms large on the heads of the “aam admi” and also the powers that be.

Conceded,inflows this year are likely to be muted compared to the fiscal gone by But also remember that very recently the mid caps and the small caps have caught the fancy of Retail,domestic as well as Foreign Intitutional investors.Here are a few factors that might give solace to the Bulls;

If the FM does not increase taxes for the salaried class given the inflationary environment it could mean a good amount of disposable income can still come to the markets (Given salary hikes).Even a 5 % allocation to equities could mean a bountiful for the markets.

The Govt. IPO’s and FPO’s by govt. companies are unlikely to be stiffly priced given the governments deperation to  raise money and contain the fiscal deficit.The FPO of NTPC is a case in point where the price  was set below the market price of the stock.

The Results season just gone by has been mixed and the subcequent quarters are expected to be much better.While this time some of the Large caps disappointed ,the midcaps did comparatively very well.As a result these pockets are trading at very low PEG ratios (implying significant upside potential).We will come to specific names later but all this makes a strong case for a  BUY call only.

A few sectors are still attractive from a long term investment prespective. I for one has always propogated long term investing.Notable among these sectors are mid cap Pharma,Print Media,Mid cap IT,Capital Goods and Finance companies.Noted that  FII’s are pulling money out of the markets but that has only been by ETF’s and not Long only Funds.

Now we come to the sensex valuations.At the time of writing the sensex has closed at 16163.44 if we divide this by the FY11 E  EPS of 1144.9 ,the P/E for the sensex comes out to be  14.12x  which is not expensive considering the fact that historically we have traded at a premium to the emerging markets.Add on top of it the fact that India is a High ROE market and therefore the PE/ROE ratio across sectors and stocks is low compared to the other BRIC countries.Which again makes a case for investment into high ROE stocks and also a  case for more inflows when the valuations become even more attractive.

Based  on the bove mentioned arguments and parameters the following stocks present a compelling case for investment in thr following stocks;(Note that all these stocks have low PEG’s ,High ROE’s and Low PE/ROE compared to other stocks in their respectinve sectors.They have also posted excellent earnings in Q3FY10.

Swaraj Engines

Kirloskar Pneumatic

Honeywell Automation

TRF

Kalpataru Power Transmission

BASF India

BHEL

Bajaj Electricals

Rallis India

GEI Industrial

Elgi Equipment

Astral Polytechnik

BGR Energy Systems

Aurobindo Pharma

There are a plethora of other stocks that have done exceedingly well .A long term view on the above mentioned stocks will fetch handsome returns for investors.

Cheers!!

Manu Jain

M.com,MBA,DSAPM.

Manujain1232003@yahoo.co.in

Disclaimer: It is safe to assume that the author ,his family members have interests in the stocks and sectors Discussed.