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Indian Equity Market: Current Scenario and One recommended Stocks

Sensex can fall till 14,500 over the next six months led by disappointment in GDP and earnings growth Bank of America (In a report published on 6th December 2011) In 2011, The BSE Sensex has lost over 23% this year and INR (Indian Currency) has fallen 17% since July. The key reasons for under performance are European Market Crisis, High Inflation and uncertainties in domestic policies. High interest and Inflation always hurt economic growth and it has happened for India as well. RBI expects Indian economy to grow by 7.6% in next fiscal year. Earlier projection/expectation was about 9%. Now the uncertain environment has brought down Index and mis priced some good equities which are trading far away from their fundamentals. After careful analysis, I believe following stock could be a good addition to a portfolio: Natco Pharma Natco pharma manufactures pharmaceutical drugs and intermediates for Indian and International market. The company has achieved overall revenue of USD82.6M in FY11, representing 27.6% growth over FY10 revenue. It is a profitable firm with healthy margins. The future growth will potentially come from below:

Source: Natco Pharma , 2010 Annual Report The quarterly performance of Natco Pharma is as given below.

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140 120 100 80 60 14% 40 20 0 4.41 5.17 4.89 13% 79.68 15% 96.24 102.91 114.49

16% 15% 15% 14% 14% 14% 13% 5.69 13% Revenue EPS Net Margin

Source: BGSE.co.in , Natco Pharma Annual report In June quarter, although company revenue grew by 6.9%, overall EPS and Net margin went down as company paid income tax in tune of INR 3.45CR in comparison with -0.46CR in March 2011 period.

Attractive Investment: At current PE of 12.79 and P/BV 1.75, it is an attractive investment. I would recommend accumulating it around 225 and buy more when it dips. Key Risk: High Debt: Company has about INR219CR as debt and D/E ratio stands at 0.52. Although this risk gets offset by its strong cash position, its carrying about INT71CR as investment and INR34CR as liquid cash and average interest coverage ratio at 5.13. Dismal performance of Oncology Department: As per latest FY, The performance of Oncology department remained flat due to sever competition in US market and inability to launch any new products. The company needs to put new strategies to increase revenue momentum from this segment Margin pressure on products from API division: Despite launch of new products, the margin and revenue on products from this division continue to experience pressure. Overall, it is a good and low price stock in Pharmaceutical sector. If you are looking to invest in pharmaceutical sector then you may want to consider it.

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Disclaimer: This material just is for information purpose; I have no positions in any stocks mentioned in this article or plan to invest in next five days. For more details please visit: www.r-swot.com