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Time to deliver...

Dec 31, 2003

Today is the last trading day of the calendar year 2003. The Sensex breached 5,900 levels yesterday, only to retrace its steps to close marginally below 5,800. The Sensex is once again, within a striking distance of the magical 6,000 mark! The Nifty is already trading at its all-time highs. Barring a couple of sectors like IT and FMCG, all others have managed to outperform the benchmark indices by substantial margins in 2003. On the back of over US$ 6 bn pouring into Indian equities by FIIs, Indian investors have had a dream bull-run this calendar year (up 74%). However, apart from the fact that today is the last trading day of 2003, it is also the last day of the December 2003 quarter and beginning tomorrow, when investors come back to the markets after making merry on New Year's eve, their focus would shift away from the past (2003) and into the immediate future i.e. quarterly results. 2003 was witness to some intense buying by foreign investors. Apart from the fact that Indian equities were relatively under valued at the start of 2003 when compared to its global counterparts, foreign money came into Indian equities on 'expectations' of an improving performance by India Inc., which has largely been met till now. And now, once again, it is time to deliver for India Inc.

Like always, the first 'jerks' or 'triggers' would be provided by the Indian tech bellwether, Infosys' results, which are to be announced on January 9, 2004. It will be a 'jerk' if the results fail to meet 'expectations' and will be a 'trigger' for the entire software sector, if the software major manages to beat, not just expectations but also gives a positive outlook. It must be noted that the software sector has been an under performer in the current bull-run on the back of concerns of pressure on margins and the lagging global tech spending. However, any positive development or announcement on either of the fronts could bring this left-behind sector back into the reckoning.

While volatility would be the order of the day, or rather the month, during the results season, retail investors need to be cautious, as they are the worst affected in such volatile movements. They should refrain from playing the results and rather take a longer-term view on particular stocks. Further, investors, who have missed the current rally, in part or in full, should not get frustrated or tempted to invest. Rather, they should take a more pragmatic view of the current situation. Here, in order to assist the retail investor community, we would like to re-iterate a few points to be kept in mind while investing:

  • Decide upon the time horizon for which the equity investments are to be made. However, remember, short-term investments are not investments in the true sense, but more of speculation. Visualise a longer time horizon and wait for companies to deliver.

  • In order to be sure that companies will deliver good performance in the future, invest in companies with sound fundamentals and strong business models. Another very important aspect while investing in a company's stock would be to consider the credibility and the track record of the company's management because it is ultimately the people at the top who are responsible to make the company perform.

  • It is not that there is a lack of fundamental stories existing amongst lower priced stocks. However, what an investor needs is a thorough understanding of the company, the business and industry it is into and how can the company capitalise on the upturn and at the same time, tide over the downturn.

  • Last but not the least, do not panic during stock market downturns, do not let greed overtake fundamentals during stock market booms and avoid the herd mentality (as it is a very high risk gamble).

To conclude, while we are certain that India Inc. (on a broader scale) will continue to perform well in the medium to long-term, it is time to sit back and re-look at stock specific fundamentals and valuations, especially, which have outperformed the benchmark indices by huge margins and make sure if their current valuations justify their growth prospects.

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