Of Chinese whispers & Indian equities! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Of Chinese whispers & Indian equities!

Nov 29, 2005

Yesterday was quite an eventful day for India. While the Indian cricket team defeated the Proteas to level the one-day cricket series, the Indian stock markets (read, the Sensex) cruised higher to cross the 'much-awaited' 9,000 points level. While the Indian cricket team had to come from behind to register their win over the world's second best team, the stock markets' moved up with effortless ease. At this stage, loud noises of 'what to buy?' seem to have turned to whispers as every investor is trying to get hold of (clandestinely) the 'one' stock that is still undervalued despite the markets having turned overbought. And now with experts vouching for the Sensex to reach the 10 k level by this year-end, the whispers have got thinner and thinner. Every one wishes to get hands to that 'elusive' buying opportunity that does not really seem to be there in the whole scheme of things.

At the current levels, the Indian markets (the Nifty) are trading at 17.8 times trailing 12-month earnings. Even considering that the constituent companies of the Nifty grow their earnings by 15% each year in the next two years, the 2-year forward P/E comes to over 13.5 times. For foreign investors, these valuations are not really 'attractive' considering that most of the other emerging markets are trading at sub-15 P/E on a trailing 12-month basis.

As far as domestic retail investors are concerned, while there still are selective opportunities in the waiting to be grabbed for long-term investing purposes, the risk return ratio has skewed deeper towards the former, i.e., risk. At the current juncture, thus, we believe that investors should introspect about the sustainability of this 'liquidity driven euphoria'. It would be a wise move now to think about what could go wrong that could lead to Foreign Institutional Investors (FIIs) (as they are the pump primers of this rally) pulling out their investments from Indian equities.

We have already witnessed (in October 2005) as to what can happen when FIIs decide to pull out. While our concern should not be construed as if we are bearish on the markets, since we continue to believe that Indian equities are a place to remain invested in for the next 3 to 5 years, we do believe that investors must strictly follow a bottom-up approach to investing. Do not rely on 'whisper-based' investing. That is going to lead you to nowhere!

Note: When a story is told from person to person, especially if it is gossip or scandal, it inevitably gets distorted and exaggerated. This process is called Chinese whispers.

Equitymaster requests your view! Post a comment on "Of Chinese whispers & Indian equities!". Click here!


More Views on News

Top 5 Recent IPO Developments You Should Know (Views On News)

May 12, 2021

So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

How Did Mindtree Perform in Q4FY21? (Company Info)

Apr 20, 2021

Here's the rundown on the company's latest quarterly results.

5 Big IPOs to Look Forward to in 2021 (Views On News)

Jun 19, 2021

A peak into the hype around the IPOs of internet companies like Zomato and Paytm

HDFC Banking and Financial Services Fund: Emphasizes on the Growing Sector (Outside View)

Jun 18, 2021

PersonalFN analyses the features of HDFC Banking and Financial Services Fund and explains the potential this fund has to offer to its investors.

Can You Make More than 100 Times Your Investment? (Profit Hunter)

Jun 18, 2021

The open secret to multiplying your money in forever stocks.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 18, 2021 (Close)