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.
Focus on fundamentals - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 3, 2004

    Focus on fundamentals

    Every event gets overplayed in the equity markets, be it elections or be it GDP growth numbers or be it disinvestment issues, etc. As we have seen in the recent past, stocks from the power, energy and banking sectors were the biggest losers (down more than 30% on an average). Now there is one question to be asked, is the new government capable of doing so much damage to the markets that NSE-Nifty is trading below 13 times P/E ratio and we are still hesitant to buy. Or were markets too bullish three months ago that we were comfortable buying, when Nifty was trading at P/E multiple of 18x?

    This situation somewhat replicates a typical retail investor's investment behaviour who is more comfortable buying when the prices are peaking (November 2003 to March 2004) and is comfortable selling at the low prices (April 2004 till date). The Fed chairman, Alan Greenspan had devised a very interesting phrase called "Irrational Exuberance". This was in response to the tech bubble in year 2000 when supported by strong tech sector valuations as the US stock market P/E went through the roof. It seems that Indian markets, to an extent, were showing the same kind of irrationality. So were markets over valued earlier or are they undervalued now? Let's try to analyse.

    The argument in support of the market reaching beyond 6000 was healthy GDP growth numbers for FY04, higher FII inflows, reforms introduced by the NDA government and, last but not the least, good monsoons. Comparing India with other emerging economies, that time too India was trading at cheap valuations so it will be difficult to say that it was over valued then. Lets' see whether it is undervalued now.

    If we look at the arguments in favour of a bullish market, probably they are still as good as they were earlier. The GDP growth prediction given by Reserve Bank of India (RBI) is more than 7% for FY05. The new government has assured that reforms will continue with special focus on agriculture. Though there may be some hiccups in power reforms (some states giving free power), but one must understand that it has been a very short time since the new government has come in. It will take some time for things to settle down. So what happened during the last year of the so called reformist NDA government should not be expected in the first month of the new government. As far as Foreign Institutional Investors (FIIs) are concerned, they will certainly be back once government starts performing. And that will present an opportunity for the investor to book profits.

    But one must buy stocks for the right reasons, after looking at the fundamentals of the company. For e.g. investing in companies expecting divestment may not be the best of motives, instead fundamentals should be the focus. So investments based on fundamental research may be the best way to invest in the markets, because fundamentals don't change overnight, and in the long-term fundamentals are reflected in the stock price.

    As rightly said by investment wizard Warren Buffet. "Stock markets are like a voting machine in the short-term and a weighing scale in the long-term, to highlight the importance of long-term investing". So we would like to conclude by saying, buy at the every opportunity and hold it for long term. You will have the last laugh.

     

     

    Equitymaster requests your view! Post a comment on "Focus on fundamentals". 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.

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    This Company Beat the Business World's 'Three Killer Cs' (The 5 Minute Wrapup)

    Aug 16, 2017

    And what it has in common with beating the stock market too.

    5 Steps To Become Financially Independent (Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Let's Hope This Correction Continues (The 5 Minute Wrapup)

    Aug 14, 2017

    Last week's correction is making a number of Super Investor stocks look a lot more attractive...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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 16, 2017 (Close)

    MARKET STATS