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.
Stockmarkets: Where to from here? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 25, 2006

    Stockmarkets: Where to from here?

    The BSE-Sensex has had an exciting run since the month of May this year. That is, of course, if volatility is something that excites you! In May, the benchmark index hit it's all-time high levels of around 12,671, and was seemingly on a non-stop upward move. However, it should be noted that all that goes up must come down, which is better known as the law of gravity, but is very much applicable to the stock market as well. Thus, we saw the Sensex crash from its highs of 12,671 on May 11 to a low of 8,799 on June 14 - a fall of nearly 31% in barely over a month!

    Now, a number of investors were crying hoarse about how much money they lost after buying stocks at the highs and selling at the lows (which, of course, is the opposite of what an investor must do to make money in stocks). We heard horror stories about how people lost fortunes by leveraging too much - clearly a case of biting off more than one can chew. However, we were always uncomfortable with the way the Sensex was moving non-stop in the upward direction, a clear sign of overvaluation, and had been advocating utmost caution much before the Sensex came even close to these high levels.

    The markets have again moved up from their lows, as buying has resumed at 'more reasonable' levels following the crash. What can investors now expect from the Sensex? Any number of views abound on the street, with some quarters giving 7,000 as a possible target, while others give another extreme target of 15,000! We refrain from giving any such number, as we do not predict index levels. We believe that it is better to adopt a bottom-up approach and select the best stocks that have the potential to give superior returns over the long-term. We examine here, a few macro factors taking place that could impact the stock markets and specific sectors.

    A higher interest rate environment
    For too long, there was a global party, with all-time low interest rates prevailing in major economies globally, including the US, Australia and Japan. This caused money to flow out from those economies into the 'emerging market economies', such as India. Global risk appetite increased significantly, with funds from developed economies scouting the globe for investment opportunities, since their markets hardly offered any meaningful returns. Thus, we had a strange scenario, where fund managers from the US invested in crude oil, gold, commodities, real estate and other such investment avenues, as well as emerging market indices. This caused the bull runs across these asset classes, a unique, unusual and highly risky situation indeed.

    However, with the US Fed resorting to a hike in interest rates, this risk appetite has reduced. Now, with higher-yielding US treasuries, some amount of outflows could be seen from emerging markets over a period of time. Given the Indian markets' dependence on Foreign Institutional Investors (FIIs) money, this might have an impact. However, we believe that, despite rising interest rates, given Indian companies' strong fundamentals and growth prospects, these will continue to do well, and consequently, their stocks should also do well on a macro basis.

    Higher crude prices
    This is certainly one variable that could slow down Indian and global growth to an extent. There have been no major new finds of crude over the past three decades, and given ever-increasing demand from countries like China and India, crude oil prices may not soften in a hurry. Higher crude prices act as a 'tax on growth', since countries need this valuable commodity to run their economies, despite the fact that prices may increase. Sectors that could get impacted are energy (specially oil marketing companies), sectors like paints that use crude-based raw materials, auto, petrochemicals and shipping.

    Commodity prices
    We are of the view that over a longer period of time, steel prices will trend downward, and are now at a stage where they are going into a downturn, as opposed to the strong upturn seen, peaking in FY05. This will have the beneficial impact of reducing the cost of raw materials for sectors like auto, construction and engineering, which use steel as a major raw material. On the other hand, steel companies will be negatively impacted, due to lower realisations.

    Other factors
    Geopolitical factors like the recent Israel-Lebanon conflict and North Korea's nuclear programme have the ability to impact sentiment, although they might not necessarily have an actual impact on the country. Given that India is becoming increasingly integrated with the global economy, this factor cannot be discounted. The 'political factor' could also play its part.

    A stable government is always a positive factor, and an unstable Centre is certainly not in India's interests. Nonetheless, it also needs mention here that despite the political turmoil that India has seen in the past, the economy has still grown at an average of around 6% per annum over a long-term period.

    Conclusion
    We believe that it does not make too much of a difference as to what level the BSE Sensex is trading at. What is more pertinent for an investor is the level at which the stocks that he or she wants to buy are trading at. We firmly believe that, in such times, a bottom-up approach would serve investors the best. Always consider the risks in your investment, such as the ones mentioned in this write-up, and go for strong companies that are likely to stand the test of time.

     

     

    Equitymaster requests your view! Post a comment on "Stockmarkets: Where to from here?". 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.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    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.

    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 (Close)

    MARKET STATS