Muhurat trading may be muted

Brokerages recommend stocks with relatively low downside risks this year.

The pain for Indian equities is nowhere near over. The mood before Diwali is anything but upbeat. From the bizarre to the tame, equity strategists are recommending a mixed bag of stocks for this year’s Muhurat trading. So, anyone looking for a sense of direction could be disappointed with the recommendations. Given the potential risks emanating from the euro zone, brokerages are choosing to play it safe. While one domestic brokerage believes only four stocks are worth buying this year, another has no recommendation under “open position delivery ideas”. It has just three recommendations under trading ideas.

It’s apparent that most equity strategists don’t want to stick their necks out this time around, as the downside risks outweigh any possible upside. Kotak Securities has picked stocks with relatively lower downside risks and its note explains: “The last Samvat year has been challenging for the markets with both global and domestic concerns weighing on the indices. The new Samvat year brings hope of some solution to the global economic crises and speedy action from the government.”

Broadly, the markets are unlikely to move meaningfully over the next 6-12 months and foreign inflows are expected to remain muted in this period. So, the mantra this festive season is to stick to boring large-caps and high quality mid-caps. Given the fluid state of affairs in the developed markets and lack of momentum in the domestic economy, equity strategists are now playing it safe by coming out with bear, bull and base case scenarios for the year.

For instance, at the start of the year, ICICI Securities had come out with its bull/base/bear case targets for December 2011 at 25,451/23,165/16,924. Though the bear case has materialised ahead of December 2011, the brokerage has further downgraded its base case target for the Sensex to 18,844 for March 2012. ICICI Securities recommends Bharti Airtel, HDFC Bank, Hindustan Petroleum Corp Ltd and ITC for this year’s Diwali shopping.

According to HSBC InvestDirect, sectors driven by investment cycle, such as capital goods, engineering, construction, utilities and global cyclicals (metals, materials), have mostly witnessed weakness on the bourses. Comprising Aurobindo Pharma, Coal India, JBF Industries and Zee Entertainment, this brokerage has chosen to call its Mahurat picks the “flamboyant four”. In the given circumstances, it is advisable for investors to pick “battleship companies,” believes Ambit Capital. In other words, pick companies sitting on a stash of cash and having sustainable business models.