Is this a good time to buy stocks?

Aug 6, 2010

In this issue:
» Russia bans grain exports, price surge expected
» Chinese growth expected to slowdown to 8%
» Will it be inflation or deflation for the US?
» Obama to fight India, China for new jobs
» ...and more!!

-------------- Become our Fan on Facebook and get a Thank-You gift --------------
On 10th August, at 10 am, we will launch our brand new investment guide, What the Charts Foretell, on how to understand the stock market better.
And we will launch this guide only on ...Yes, you guessed it right - Facebook! So become our fan and as a thank you gift, get this guide FREE. Quick! Just Go to Facebook. Click on the "Like" button and Become a Fan of Equitymaster now!

The BSE-Sensex has still not even touched its erstwhile high of 21,000 many point out. How can stocks be called expensive? But as we scour the universe of stocks listed on Indian exchanges, the average stock appears anything but cheap. Some stocks that make up the indices are lower than their earlier highs, one reason why the overall indices appear lower. But many others are far far higher, touching new lifetime highs every day.

And this fact hasn't gone unnoticed by one particular group who just loves high prices. They are the companies and their promoters looking to raise equity capital. For as stocks slowly inch higher, they now ready with a battery of IPOs and FPOs.

A recent report states that the activity in the 'grey' market for public issues appears to be hotting up once again. The grey market premium before the stock lists is a measure of expectations of listing gains. And so, along with IPOs, strong expectations of listing gains are also becoming more rampant. Further, most IPOs slated to hit the market in the next couple of months are now eyeing a much higher amount than they were planning to raise initially. And why not? Higher issue prices mean promoters will have to part with a lesser portion of their companies to raise the same amount of capital.

Obviously, corporate India thinks that this is good time to sell a share in their company. Let their marketing not convince you into believing that this is also a good time for investors to be loading up on stocks. A good time to buy, and a good time to sell stocks cannot be at one and the same time.

What are you doing with your money right now? Tell us or make a post on our Facebook page.

 Chart of the day
Today's chart of the day doesn't just stack up the per person GDP in various countries around the world. It does this on a purchasing power parity (PPP) basis. Different exchange rates between countries mean that a given amount of money, like one US$ for example, has differing values in different places. A comparison on a PPP basis gets rid of this problem by ensuring that each unit used to measure GDP buys the same volume of goods and services across various countries. This unit is termed an 'international dollar' for the purpose of our chart. With that in mind, here's how India is placed against some other large countries.

Source: IMF

We wrote a few days ago how global wheat prices are expected to surge led by a global shortage of the commodity. We had quoted Wall Street Journal as reporting that wheat prices have staged the most drastic rise in more than 50 years. This is on the back of a drought in Russia that has fueled worries that it could lead to a global shortage of the grain.

Now, what we hear today is expected to raise fears even further. Russia, driven by a drought, has decided to ban its grain exports till the end of this year. Russia is an important force in the global supply of grains, thus this move has reignited fears of a global food shortage. Russia is facing its worst drought in a decade, which has produced record-high temperatures and has led to loss of lives and crops.

We see this situation as very unstable, and can once again cause food riots around the world like what we last saw in 2008.

Now, while Russia is witnessing nature's fury, its BRIC peer China is facing troubles on the economic front. Economists see Chinese GDP growth slowing down to 8% this year as the government gradually rolls back its stimulus. Even its central bank agrees that it is highly likely that the economy will slow down and stabilize in the future. Though it has removed fears of a likelihood of China seeing a double dip recession.

The Indian benchmark indices have already gone past their 2010 highs. This, even as the rest of the world around it takes two steps backwards for every step forward. What explains the anomaly? Domestic factors for sure. Make it monsoons to be more specific. Indian markets have broken their 2010 highs at around the same time the news of the July monsoon figures started pouring out. And this makes us believe that the recent buoyancy could certainly be attributed to the fantastic catch up act that the rain gods have engineered.

A leading daily reports that in the last week of June, the cumulative rainfall deficit was around 16% below normal. At the end of July though, the same stood at 5% below normal, thanks to bountiful showers during the month. Needless to say, this has indeed worked up investor appetite. Monsoon recovery has reignited hopes of a 3.5%-4% growth in agricultural production, a far cry from last year's decline of 0.2%. And this could lead to across the board buoyancy in demand for consumer goods and services as rural folk start flashing their higher purchasing power. However, holding back one's enthusiasm a bit may indeed help. After all, we are still only halfway through the monsoon season. Nevertheless, it does look like the rain gods may not disappoint us this time around.

No one seems to say with certainty whether the much touted world economic recovery has actually happened. For the men at US' central bank, that translates to - no one really knows whether they should fight inflation (rising prices) or deflation (falling prices). Their official line so far is 'inflation is likely to be subdued for some time'. But several officials are now worrying about the risk of deflation.

In the deflation scenario, business production suffers and unemployment rises. However, it is unlikely that the US Fed will mention 'deflation' anytime soon - given how it can spook markets. Of course, here in India, the concerns are squarely with respect to inflation - especially in food and fuel prices.

The Indian outsourcing industry had just started to breathe in relief. With the global crisis coming to an end, companies are looking towards outsourcing to keep their costs low and boost their profits. And now the US President drops a bomb. President Obama recently vowed that he would do everything to fight India and China for new jobs. He said that he would try to ensure that the new jobs were created for Americans in America rather than being shipped off to the lower wage nations. The measures would range from offering incentives to companies investing in US to jumpstarting the "clean energy" industry. All measure would be focused on reducing the attractiveness of off sourcing for companies and in turn improving the employment conditions in the US.

Mr. Obama had made similar announcements when he became the President. At that time, fears had started to loom that this was the end of outsourcing. This spelt trouble for the Indian outsourcing industry, which gets almost 50% of its business from US. However, as time went on, these fears never became a reality. It would be a wait and watch scenario to see if the current stand has any major impact.

After opening in the red, Indian stock market have managed to stay marginally in the green, in the afternoon session. The BSE Sensex was trading around 40 points higher at the time of writing this. Stocks from the FMCG and realty space were trading positive while banking and PSU stocks saw some declines. Sentiments were mixed in Asia, with China being the biggest gainer. Singapore was one of the major losers.

 Today's investing mantra
"There was nothing wrong with these ideas, except that it was almost impossible not to carry them too far. With encouragement from the past and a rosy prospect in the future, the buyers of 'growth stocks' were certain to lose their sense of proportion and pay excess prices. For no clear-cut arithmetic sets a limit to the present value of a constantly increasing earning power. Such issues could become worth any value set upon them by an optimistic market." - Benjamin Graham

Today's Premium Edition.

Recent Articles

All Good Things Come to an End... April 8, 2020
Why your favourite e-letter won't reach you every week day.
A Safe Stock to Lockdown Now April 2, 2020
The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
A stock with strong moat is currently trading near 5-year lows.
Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...

Equitymaster requests your view! Post a comment on "Is this a good time to buy stocks?". Click here!

22 Responses to "Is this a good time to buy stocks?"

n samraj

Aug 19, 2010

by 2012 sept the sensex could be anything between 35 to 50 k depending on the prevailing state of mind at that time. stocks to invest everonn edu ltd,hinduja ventures ltd, assam company, bombay dyeing, ackruti city, videocon industries, nesco ltd.



Aug 11, 2010

i am just cheking the direction of market,that is the market touches once again high position. making little profit without taking any risk.



Aug 9, 2010

So many stocks are there in the market being undervalued due to some "Qtrly Result Not upto the xpectation ". But these are having good potential & not linked with Index.Try with the field of Education, Telecom,Pharma. Obviously with three to five years plan. Contra views earned more than anything!


dhawa lunawat

Aug 9, 2010

hello everybody iam small bussines man i m trying 2 get some expreince from equity master so iam touch with it thanks



Aug 8, 2010

Picking up a stock which is relatively low priced and has good prospects of appreciation in the medium / long term is very difficult. If we identify a particular company as good, its stock valuation is already high as the market has priced in its potential earnings in the future. Any investor has to be extremely cautious and should not blindly invest huge chunks of money as the market sentiment is susceptible to happenings around the globe and the trend may suddenly change. However stocks are the only option to earn a decent return on investments and greed should not be the motive for any investment in stocks.



Aug 8, 2010

I dont think it is a good time to buy, and would agree with Dinesh's opinion. But you never know which way would the FII money tread our markets!!



Aug 8, 2010

booked profits a couple of weeks back.waiting for the dip for fresh purchases.



Aug 8, 2010




Aug 8, 2010

I am fully invested and will just remain invested.


col gd rampal

Aug 7, 2010

when should i sell my MF units

Like (1)
Equitymaster requests your view! Post a comment on "Is this a good time to buy stocks?". Click here!