Caution while investing - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Caution while investing

May 20, 2003

Markets seem to have taken a turn for the better. However certain sectors still remain volatile to say the least. The sectors in question here are the banking and the software sectors. Banking stocks have been in the limelight due to different triggers. Software stocks on the other hand have been battered on the bourses post their March quarter results, but a slow recovery is being observed, however not without hiccups. If one were to look at the performance of banking sector stocks we can observe that after the initial euphoria of the asset reconstruction bill being passed, there has been a second rally in this sector in the last one month. However the rally seem to have corrected already. There are ample triggers like the asset reconstruction act, government buyback program and cost cutting initiatives by public sector banks that is likely to keep the sector buoyant going forward. However the rally seen in the recent past did not seem to be prompted by these triggers.

No doubt there are the above-mentioned triggers for the banking sector that will change its fundamentals going forward, but these are long-term triggers. What we mean is that these positive changes in the banking sector will take time to show results. Investors need to look very carefully in to the performance of these banks under the new environment, because the benefits to different banks will be different in magnitude.

For example, the benefits of the buyback will be apparent only after one knows the intention of the various public sector banks in this regard, especially because certain banks have second thoughts regarding this scheme. Also, while these banks have made large investments in technology and initiated other cost cutting measures (VRS), investors need to wait and watch whether public sector banks are indeed successful in improving efficiencies post these initiatives.

Coming to the software sector, the initial disappointment was caused by Infosys, which gave a subdued guidance for FY04. Since then the sentiment towards this sector itself has been rather bearish. This is however not without reason. Indian software companies have relied on the low cost model to sustain their growth, however with increasing international competition this model is no longer sustainable. Thus the strong EPS growth seen in the past may just be a thing of the past unless these companies are able to garner enough volumes. In his regard too the indications are not all that negative. The larger software companies are still able to garner healthy volumes and are seeing healthy topline growth. From here on volumes, net margins are likely to be the drivers of the bottomline.

In both these sectors one aspect is getting increasingly clear. Investors need to be careful while they pick their investment options. Large entities in both these sectors are likely to be the biggest beneficiaries, in case of an improvement in economic environment (global economic environment in case of software companies). Caution needs to be exercised.


Equitymaster requests your view! Post a comment on "Caution while investing". Click here!

  

More Views on News

How Much Money Should an Investor Set Aside for Trading? (Fast Profits Daily)

Sep 21, 2020

In this video, I'll give you a simple equation which you can use to decide how much money you can set aside for trading.

Kotak Standard Multicap Fund: Strategizing Growth with Focused Approach (Outside View)

Sep 21, 2020

PersonalFN's analysis on the features and performance of Kotak Standard Multicap Fund.

Sensex Can Go to 25,000 Before it Goes to 60,000. Are You Prepared? (Profit Hunter)

Sep 21, 2020

Am I expecting a big crack in the Sensex and what next?

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Sundaram Bluechip Fund: Will Hold the Stable Horses (Outside View)

Sep 18, 2020

PersonalFn briefly outlines the newly launched NFO note HSBC Corporate Bond Fund.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 21, 2020 (Close)

MARKET STATS