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.
Poll: At 5,400 levels...investors prefer caution! - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 29, 2004

    Poll: At 5,400 levels...investors prefer caution!

    Amidst all the global developments, much of which is not good news for any stock market across the globe, the Indian bourses have rather quietly (relative to the 2003 bull run) headed, once again, northwards, notwithstanding the correction over the last couple of days. In fact, a small faction of the market is already talking about (very much similar to last time) the Sensex vaulting the 7000 levels! In this backdrop, we conducted a poll on our website with the intention of trying to gauge what you, the retail investor, feels about this leg of the rally this time around.

    The chart above shows the results of the poll conducted by us, which was, "At index levels of 5,400, your investment strategy is to:" The options provided were buy, hold and sell. The surprise (though not much) was the fact that only 24% of the voters preferred to buy at these index levels, while 48% preferred to hold onto their positions. The balance, 28% of course, had a sell view.

    Nonetheless, considering the above poll result in totality, it would not be inappropriate to conclude that there is a certain amount of bullishness amongst investors even at these index levels. But since the buying interest would be limited (as per the poll), the near term index movement seems rangebound. However, just to put things in perspective, compared to a poll conducted on similar lines during March 2004 at 5,300 levels wherein 58% of the voters had opted for the buy option, the optimism has reduced considerably since then.

    The reasons for this are not difficult to assess.

    • One being inflation, which is comfortably hovering near the 8% levels that tends to point to the fact that a hike in interest rates is imminent. Further, with the international cues pertaining to interest rates also indicating a rising trend, can India stay insulated for long? We don't think so! This could adversely affect corporate balance sheets, their plans of expansion and also the low-interest rates dependant sectors like auto and housing. However, this would happen only if there is a spike (rapid rise in interest rates in a short period of time) in interest rates. While the possibility of a spike is limited, investor sentiment is likely to remain cautious.

    • The second big threat is a fall in agricultural output in the current fiscal considering the uneven rainfall patterns witnessed over the country in 2004. Since India continues to remain a pre-dominantly agriculture driven economy as nearly 65% of our population depends on this, it has the 'potential' to retard India's growth. In fact, most of the estimates pertaining to India's GDP growth have already been scaled to the region of 5.5%-6% range from the pre-monsoon predictions of 6.5%-7%.

    • The third reason, which actually is the cause for the first reason above, is high crude oil prices. Continuing strong oil demand and continued possibilities of supply disruptions have increased the threat of jeopardizing global growth, leave alone India.

    However, the above is just one side of the story. But, if the investor is ready to extend his/her investment horizon period, then we believe that the long-term growth story for India Inc. is not over yet and still has some way to go. Just to jot down a few of the arguments in favour of Indian equity investments:

    • It must be noted that the government, in the last few years, has taken proactive steps in the development of the economy. For instance, introducing power sector reforms, infrastructure development, liberalizing the investment climate and bringing down interest rates. Overall, our economy has become more competitive and flexible.

    • Secondly, having proved its manufacturing (and service) mettle in the last couple of years, India is likely to be a huge beneficiary of the global outsourcing story. India has proved its excellence in many sectors including IT, pharma, auto ancillaries and textiles and is seemingly well geared to become a outsourcing hub for these sectors.

    • Thirdly, though the GDP growth target for FY05 may have been scaled down, over the longer-term, the Indian GDP is expected to grow (more or less) at a CAGR of about 6% (a higher growth is welcome as targeted by the Tenth Plan at 8%). Thus, it continues to remain one of the faster growing economies in the world. Further, with special emphasis having been provided to agriculture and improving irrigation facilities by the current government, there is an increased possibility that the dependence on rain Gods for a good crop would reduce in the future.

    • Last but not the least, from the stock market point of view, the BSE Sensex currently trades at a P/E ratio of 15x trailing 12 month earnings, which is relatively attractive when compared to stock markets of some other emerging economies. Moreover, while the Sensex constituents together have logged in a 17%-18% growth in earnings over the last 7-8 years, even if we assume a CAGR earnings growth of 15% over the next couple of years (including FY05), the Sensex valuation rests between 10x-11x earnings.

    It must be noted that currently, the 'India story' is primarily that of growth and to a very small extent that of value (akin to 2003). Thus, while making fresh investments into equities, one has to keep in mind that the under-valuation in Indian equities no longer exists and hence, the investor must be content with the fact that he or she may not get the returns that has been seen during 2003. On the contrary, if one were investing in a stock expecting the growth story to pan out, then he would have to keep a long-term perspective in order to garner sufficient returns.

    Thus, the bottomline is that investors, who intend to invest at these levels, must do so keeping in mind the growth story rather than the under-valuation story. Also, one must understand that investments in equities are a risky proposition and a higher level of involvement is required on the investor's part in order to realise consistent and adequate returns over a long-term period. The message here is that while short-term distortions may exist in the market, investors should not be completely oblivious to the same. The implications, on their respective sectors and stocks, have to be studied and factored into the prospects of their investment.



    Equitymaster requests your view! Post a comment on "Poll: At 5,400 levels...investors prefer caution!". 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...

    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


    Aug 16, 2017 (Close)