Feb 24, 2004|
Patience is the name of the game...
The Indian bourses have been in a strong grip of volatility in recent times, with the index moving by 6%-8% within a span of few days a common feature. Also, the 100-150 points intra-day movements on the BSE-Sensex (BSE-30) is certainly not healthy for a majority of investors, which mainly include the trader community that tend to restrict their investment view to a day-or-two. However, we must re-iterate here that this kind of short-term outlook is neither the appropriate investment style nor do we advocate this style of investment practice. Timing the markets is something, which is extremely difficult. However, for long-term investors, the journey for India Inc. would continue to remain strong. Such kind of temporary phenomena (volatility), presents long-term investors with an opportune time to build a fundamentally sound portfolio at attractive point-of-entry levels.
As far as the current volatility on the bourses is concerned there are a host of factors responsible for the same, but most of which are temporary in nature. One factor seems to be the lack of investor conviction at higher levels. This is evident from the selling pressure witnessed at every rise, as 'domestic' investors seem to have decided to sit back and re-work their investment options, especially considering the fact that the domestic benchmark index has already doubled from its lows in April 2003. The lack of conviction at higher levels is also due to the impending general elections, which tends to cast a shadow over the current policies and initiatives already in place, just in case there is a change of government. Further, 2004 is also witnessing an outsourcing backlash in the IT sector, which has cast a temporary shadow of gloom over the growth of the sector, especially if this phenomenon gathers further pace. Also, in January this year, the uncertainties with respect to participatory notes had also unnerved investors, which led to some serious unwinding of positions, both in the derivatives and cash markets.
However, while there have been ample reasons for stock markets to continue to languish within a trading range, some positive developments in 2004 are an indication of the fact that the Indian growth story could continue for some more time to come. The first and foremost the economy us slated to achieve an 8% growth on an annualised basis, on the back of strong improvement in the agricultural economy. Also the effects of this strong growth will be seen in FY04 also as higher income (thus higher demand) reaches the rural population on account of improved monsoons last year. Further, the upgrade of India's long-term foreign currency rating to 'investment grade' from 'sub-investment or speculative grade' by the global rating agency, Moody's Investors Services would also aid India's efforts at improving profitability, as it would aid India Inc. to get finer rates on foreign loans, which would help them to keep a check on interest outgo owing to the huge capex plans lined up for the coming years. The ratings upgrade is also a further vindication of the growing confidence of international agencies in the current state of the Indian economy.
Further, it must be noted that after pouring in almost US$ 6.2 bn in 2003, Foreign Institutional Investors (FIIs) have continued with this trend in the current year also with their net investments already near US$ 1.3 bn in Indian equities. This could be due to the fact that the Indian markets continue to trade relatively cheaper on the Price/Earnings basis when compared to other developed and some emerging markets. On the trailing twelve months basis, the Indian benchmark indices are trading in the vicinity of 15.5x, which is likely to improve further going forward with Indian companies on a strong growth path. It must be noted that the average has been in the region of about 17x-18x. However, though there still exists some upside for Indian stock markets, one has to come to terms with the fact that the surge in indices from hereon will not be as strong as was witnessed in 2003 and thus expectations need to be toned down. In fact, from hereon, 'patience is the name of the game'.
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