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Sensex: One year from now?

Jan 18, 2005

As market participants try to come to term with the 'reality' that markets do not move northwards only and that they do fall, experts have been apprehensive about their projections for the BSE-Sensex targets by the end of calender year 2005. However, even in these 'trying' times, a large proportion of our readers (who have taken our latest poll) believe that the bulls are likely to strike back and take the markets to their all-time high levels again! Response to the poll...

In the latest poll on our website, we had asked our readers as to where do they see the Sensex one year down the line. The largest proportion of the voters (59%) polled in favour of the Sensex closing the year above the 6,500 levels. Out of the remaining, while one half voted for the level between 6,000 and 6,500, the remaining half thought the markets would close below the 6,000 levels.

Poll days: Jan 11 to Jan 17, 2005

Our view...
In our stock market strategy for 2005, which formed part of Reflections 2004, we had indicated that despite a strong undertone in the Indian markets on account of large FII inflows, 2005 was likely to be a challenging year.

The panic selling that was seen across global equity markets (including India) during the first week of the year vindicated our view. While there is still a long way to go as far as the year is concerned, we believe that there are several pressure points that might be headache for short-term participants in equity markets. The minutes of the Federal Reserve meeting released in the first week of the year could just be a starting point of things to come. The minutes indicated that US interest rates are in for a faster rise going forward. This is because the pressure from inflation in the US is on the rise owing to the recent depreciation of the dollar against major global currencies.

While the rise in US interest rates might have repercussions for Indian markets, this is likely to be more of a short-term affair. We believe that the India growth story remains intact from a three to five year perspective. Serious long-term foreign institutional investors like CalPERS, Warburg Pincus and Fidelity are likely to be long-term players in India and this should soothe long-term investors' sentiment. Also, one needs to understand that the rise and fall in the benchmark indices are just an indication of the overall sentiments prevailing in the market and do not necessarily mean that all stocks are overvalued/undervalued. Even at 6,600, there were some really good stocks that were 'buys' for the long-term. And now, at the current levels, the number of such stocks has only increased.

In such times, therefore, we would suggest investors to have a long-term perspective and invest in a staggered manner. Moreover, they need to buy into 'pillar' companies, those that have visionary managements at helm and strong business models. Returns will take care of themselves! So, keep away from this prediction game and, rather, invest (not speculate).

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