Sep 29, 2001|
Return of the blue chips
Investors seem to have done a lot of soul searching over the previous weekend ruminating on the country's economic health and degree of impact of the WTC strikes. Many would be thinking is the health of the economy same as it was 8 years back? The answer seems to have been answered over the current week. Domestic equities, despite uncertain U.S markets, finally made a come back after four consecutive weeks of decline.
There are very few and far between instances in an investor's lifetime that equities are priced cheapest in a decade. After all those years of above 5.5% GDP growth one gets to pick equities as if none of it had happened. Also, market thinking seems to be that U.S is not likely to adopt blanket military action. First salvos against terrorist outfits could take the form of choking their financial and intelligence infrastructure. Consequently, as repeatedly stated by the U.S prez, retaliatory action is likely to be a longish term exercise. Keeping this in mind investors seem to have lapped up stocks.
Having said that, the economy continues to decelerate. Earning season is set to commence with the fiscal first half coming to an end. The results and management guidance is likely to help guage the health of India Inc. and expectations for rest of the year. The picture is not likely to be pretty. Another dampner is that the season is universal. U.S corporates are set to declare thrid quarter results and are not expected to match earning estimates. Many of whom could use the happenings over the previous fortnight as a key reason for drop in earnings.
The BSE Sensex and NSE Nifty spurted sharply over the past trading week led by old economy counters with resurrection of the blue chips. The top five scrips on the Sensex, in terms of weightage, control 57% of the market cap. Many of these counters were instrumental for the gains. All of these, save for HLL, were trading at their 52-week lows if not more, which could have whetted market appitite.
With a weakening global and domestic economy investors may choose to take refuge in defensive counters. Portfolio rebalancing is likely to be guided by the rationale; which sectors/companies are most immune to the slowdown. Also, who are most likely to withstand the tough times. With lower household incomes one tends to cut down on big ticket items; automobiles and consumer durables. At a lower level consumer facilities (clothing etc.), petrol and telephone bills. On the other hand, the last thing one stops is probably eating 'rotis', biscuits ... your basic consumer staples etc. The smokers are going to be smoking and probably a lot more when the chips are down.
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