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Year 2000 revisited? - Views on News from Equitymaster
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  • Nov 6, 2003

    Year 2000 revisited?

    With the stock markets showing no signs of respite, one wonders whether the market upswing is a representation of the country's improving fundamentals or just driven by speculation. While, we all wish that it were the former, certain events do raise doubts in ones mind. Take a look at the following table.

    Yesterday's top gainers in BSE 'A' group
    Company Gains (%)
    GTL Ltd 21.5
    Silverline 20.0
    DSQ Software 20.0
    HFCL 20.0
    Pentamedia 20.0
    Trigyn Technology 13.4
    G E Shipping 12.4
    Jaiprakash Industries 12.1
    McDowell 11.8
    SSI Ltd 10.7

    The above table shows the top gainers amongst the BSE 'A' group shares yesterday. A close look at the companies that have managed to find a place in this group would easily scare off even the most optimistic investor. Out of the 10 stocks above, 5 stocks were involved in the 2000 stock market scam. In 2000, a lot of speculation was seen in companies like GTL, Silverline, DSQ Software, HFCL, Pentamedia, etc and their prices were driven way above fundamentals despite no significant growth prospects. As soon as the scam was unearthed, these stocks fell sharply resulting in huge losses for the retail investor. Worse, the retail investor lost faith in the stock market resulting in an elongated slump in the markets, which took in its stride, to a certain extent, even the stocks of those companies, which displayed positive growth prospects.

    While no one will deny the fact that most Indian companies deserved a better valuation and hence a rise in the stock market index was inevitable, most will agree that the markets have moved up too-fast-too-soon. Yesterday's top gainers have traditionally been a favorite with speculators and the very fact that they are among the top gainers, despite no visible change in the growth prospects (if any), is an indication that speculators are at play.

    Investors hence need to exercise caution and moreso in this kind of 'uninterrupted' bullrun. They should not get carried away with market sentiments and tone down their expectations. Finally, investors should stick to fundamentally strong companies with good managements and good business models, as although in the short run, prices may be affected by market sentiments, in the long run, stock prices of fundamentally strong companies with good business models will always reflect the true worth of the same. Hence, 'Caveat Emptor - Buyer Beware'.



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