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If wishes were horses... - Views on News from Equitymaster
 
 
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  • Aug 8, 2005

    If wishes were horses...

    At the outset, we have been cautious on the stock market for a while and in this short-term, we have been proved wrong. But we continue to have 'Sell' recommendations in one of our subscriber services. As the markets touch new highs, it is interesting to watch what the experts have to say about its future outlook. The same people who were downgrading the index target six months back are upgrading now. Ominous signs indeed, for investors!

    If you are planning to invest in stock markets at the current juncture, make some wishes.

    1. Wish that the experts who continue to recommend stocks and are raising the target for the benchmark BSE-Sensex walk the talk i.e. they are also buying into what they are recommending! Some are even recommending equities for the long-term now! There could be two reasons. One, the current valuations adequately reflect the next two years growth prospects and therefore, only way to recommend is to elongate the holding period. Secondly, they just want to say 'Buy', irrespective of whether valuations are attractive or not.

    2. Wish that the crude prices do not affect the Indian economy in any way. When asked, one expert opined that the crude prices have been going up for two years now and it has had no impact on the stock market. It is a routine and markets have discounted this!

    3. Wish that the current government would not listen to the Left. If a 10% stake sale in BHEL is called 'disinvestment' and raises strong objections from within the party, which eventually leads to 'postponement', one is not sure what level of hard decisions will the current government take to push India into a new growth trajectory. Probably, with oil PSUs posting losses in 1QFY06, the case for disinvestment in these companies may strengthen (as per the common minimum programme).

    4. Wish that the foreign institutional investors who have 'blessed' India with their money, as a result of which the stock market continues to touch new highs, will also 'bless' us in the future. Wonder how many ask where is FDI money as opposed to FII money! Wish that India remains attractive or relatively attractive for the next three years for Foreign Institutional Investors (FIIs).

    5. Wish that expectations of market participants were always right going forward. By expectations we mean, earnings growth and valuation multiples. Because even at the slightest disappointment, the downside reaction could be significant considering the fact that expectations are high. What is also alarming is that just because the stock markets are going up, even without earnings of companies being upgraded, the price target is going up due to upgrade in valuations. In our view, a bull market or a bear market does not change fundamentals of a sector.

    What do you wish?

     

     

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