X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Markets: Sit back and ponder... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 6, 2006

    Markets: Sit back and ponder...

    Markets have been on a roll since the start of the year, crossing various milestones along the way. Despite the blip in October 2005 when the 'Sensex express' grinded to a temporary halt, it has nevertheless crossed the magical 10,000-mark. This euphoria has led everyone, right from the so-called market pundits to the common man wanting to garner a slice of the equity pie.

    However, one needs to slow down a bit and not get swept away with the tide that is the Sensex. While we do not follow the practice of taking a call on where the index is headed, we nonetheless advise investors to mull over the following points while investing in equities.

    Think long-term: Investors need to follow a long-term approach while investing in equities rather than take a call on short-term price movements. Also, the fundamentals of companies should be looked into i.e. strong topline and bottomline growth, return ratios, dividend payout ratios and so on. This means that researching a company assumes paramount importance for the purpose of reaping rewards rather than following the futile exercise of timing the markets.

    Sectoral diversification: There is an age-old adage, which goes something like this - "Never put all your eggs in one basket, lest you should burn your fingers." This certainly holds true in the case of investing in equities and had become even more pronounced during the tech bubble. This means that an investor should look to invest not in stocks in one particular sector but in stocks across sectors. Even in a particular sector, one can evaluate various business models and invest accordingly. Take the pharma sector for instance. One can either invest in the companies directly competing in the increasingly competitive generics space (Ranbaxy and Dr. Reddy's), or in companies following the partnership route (Cipla and Nicholas Piramal). This investment decision depends upon the future growth prospects of each of these business models as well as one's risk appetite.

    Good management: We believe that a good management team goes a long way in providing the right direction to a company, even though attributing a value (read number) to the same is difficult. Having said that, adversity really tests the mettle of the 'top brass'. A case in point is that of Dr. Reddy's. It is a well-documented fact that the company faced a terrible FY05. However, the steps taken by the company to counter the same shows vision on the part of the management. To put things into perspective, Dr. Reddy's did not curb its high R&D expenditure just because things took a turn for the worse. Instead, it came out with a novel concept of roping in venture funds to finance its R&D program, improve its margins and at the same time, capitalise on any potential upside in the event of commercialisation of any of its NCE assets. This is line with the company's long-term vision of being a discovery-led global pharma company.

    Valuations: While the growth prospects of a company may look good, valuations also have to justify the same. Currently, the Sensex is trading at a price-to-earnings (P/E) multiple of around 19 times its trailing 12-months' earnings, which is by no means cheap. Having said that, even at these levels, there are stocks with good earnings prospects with relatively cheaper valuations. The trick lies in identifying the same.

    Summing it all up...
    While equities continue to remain a highly rewarding asset class, investors need to practice caution and not invest in stocks just because every Tom, Dick and Harry is doing so. At the end of the day, every investor has a different profile and risk appetite, and one needs to accept this fact and follow a disciplined approach rather than have a herd mentality.

     

     

    Equitymaster requests your view! Post a comment on "Markets: Sit back and ponder...". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 12:43 PM

    MARKET STATS