Buy Stocks For 25% Gain In 2013: Ridham Desai

Ridham Desai of Morgan Stanley doesn’t give up. In June 2012, when the stock markets were in the doldrums, Ridham Desai stepped out of the shadows and showed a beacon of light to investors. “If you buy now, you stand to make a 40% gain with 95% certainty” Ridham Desai promised with an air of quiet confidence.

That promise came true because the markets surged soon thereafter.

In November 2012, when investors were jittery about the Index touching the magic number of 20,000, Ridham Desai surfaced and calmed their nerves by pointing out that due to the favourable factors such as Government action, increased corporate earnings and reasonable valuations, the stock markets had a lot of steam left in them.

Now, in an article in Business Standard, Ridham Desai has expounded on his pet theme on why investors should dive into stocks without any hesitation.

With his usual clarity of thinking, Ridham Desai pointed out that there are four fundamental ingredients to a bull market – a bullish steepening of the yield curve, expanding profit margins, attractive valuations and liquidity.

All the four ingredients are now in place, Ridham Desai emphasized. The valuations are attractive, the yield curve has stopped its bearish flattening, sentiment has improved and profit growth is entering a period of recovery, he said.

Liquidity is also improving, both on the Global and on the domestic front, Ridham Desai said, and added that this would move into equities and drive up prices.

The consequence of an upcycle in earnings, strong global liquidity and supportive valuations should help the market rise around 25 per cent in 2013, Ridham Desai promised.

On the stocks and sectors that investors should look at, Ridham Desai said that cyclical stocks are “ultra cheap” while small- and mid-cap stocks look “very attractive“. He said investors should prefer cyclical sectors and the pecking order should be financials, consumer discretionary, industrials, energy and materials. He also advised investors to focus on EPS (earnings per share) growth and ROE (return on equity) and to avoid stocks which had high debt and exorbitant valuations.

Indeed, Ridham Desai’s analysis is based on logic and does make a lot of sense. So, this is not the time for investors to be defensive. They should pull out their money from the fixed deposits and put it into equities of top-quality companies slowly and steadily.