Sep 17, 2001|
Is it time to buy the Sensex?
The benchmark BSE Sensex fell by 11.5% last week with investors preferring to liquidate holdings in the wake of the puzzling uncertainty. Was the fall warranted or is it an overreaction by the market?
Consider this. Over the last five 5 years, the Sensex has moved in a P/E band of 28x and 12x. After a free fall of more than 450 points last week, the Sensex is currently trading just above 10x FY02E earnings, which is at a historical low! It is for the first time in the last five years that the Sensex has breached 12x mark.
The trend in the futures market is clear. While the near term contracts are trading with marginal cost of carry, the open positions and cost of carry have increased considerably for the far end contracts. This indicates that while the markets are bearish in the near term, they are expecting a recovery in the longer term. The November end future contracts saw maximum increase in volumes and open interest positions on the last trading session. Longer-term contracts are showing a clear uptrend in their cost of carry.
Activities of market heavyweights
There was a spurt in FII and MF activity in the last three days. While FIIs have remained heavy sellers after Tuesday's disaster, MFs have suddenly turned buyers. Mutual funds have remained net sellers over the last several months. A sudden spurt in buying by mutual funds might be an indication that institutions are finding fundamentals attractive ignoring near term uncertainty.
These factors indicate to some extent that the free fall in the market might be an opportunity for investors. However, there is no doubt that it would take some weeks before a clear picture emerges in the world market while searching for a bottom. The PM's address to the nation, which sounded rather like a profit-warning signal, raised genuine concerns on how bad things can get. But the fact remains, that going purely on fundamentals, valuations are looking attractive.
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