Mar 17, 2005|
Secret to investing!
The indices ended lower for the third day in a row this week. The mood is caution led, in contrast to the bullish sentiment prevalent just the previous week, where the markets came very close to the magic mark of 7,000. Since the all time high closing of the BSE-Sensex at 6,915 on March 8, the benchmark has declined 2.3%. What's changed in one week?
It is very logical for the markets to take a bit of breather after reaching new highs. Infact, profit booking is a welcome and a healthy sign. It signals that participants are cautious of not going overboard in their enthusiasm like it happened during the 1992 and 2000 bull phase. To expect the indices to continuously chart new highs is unrealistic.
If one were to really look for some reasons for this caution, the fact that crude prices continue to remain high and expectation of the US raising interest rates faster than expected, could get some of the blame. However, at the local level, the fact that the month of March signals the end of the financial year, may be a key reason for investors opting out of some portion of their investments. Also, for some sectors, the impending VAT in April is working as a dampener in the short term. The sectors include pharma and FMCG. Also, the earning season will be back April and that could act as a pointer to the market direction.
We really do not know whether the markets will fall further or touch new highs this week, or month or even the next few months. The fact is, that despite the FM's moves to encourage retail participation in equities, Indian indices continue to be led by the Foreign Institutional Investors (FIIs) inflows. So, keep a close eye on what Mr. Greenspan is doing to the US rates.
However, longer term (we mean 3 years and more), we continue to be optimistic on India Inc. and its earning potential. We believe that India is looking good when compared to other emerging markets vying for FII attention. The tax structure too, is tilted to encourage equity investment culture in India. So, please keep your investment horizon longer and keep your return expectations realistic. Above all: "Keep your head, when everyone around you is losing theirs". That is our preferred method of looking at equity investments.
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