Caution while investing - 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?  

Caution while investing

May 20, 2003

Markets seem to have taken a turn for the better. However certain sectors still remain volatile to say the least. The sectors in question here are the banking and the software sectors. Banking stocks have been in the limelight due to different triggers. Software stocks on the other hand have been battered on the bourses post their March quarter results, but a slow recovery is being observed, however not without hiccups. If one were to look at the performance of banking sector stocks we can observe that after the initial euphoria of the asset reconstruction bill being passed, there has been a second rally in this sector in the last one month. However the rally seem to have corrected already. There are ample triggers like the asset reconstruction act, government buyback program and cost cutting initiatives by public sector banks that is likely to keep the sector buoyant going forward. However the rally seen in the recent past did not seem to be prompted by these triggers.

No doubt there are the above-mentioned triggers for the banking sector that will change its fundamentals going forward, but these are long-term triggers. What we mean is that these positive changes in the banking sector will take time to show results. Investors need to look very carefully in to the performance of these banks under the new environment, because the benefits to different banks will be different in magnitude.

For example, the benefits of the buyback will be apparent only after one knows the intention of the various public sector banks in this regard, especially because certain banks have second thoughts regarding this scheme. Also, while these banks have made large investments in technology and initiated other cost cutting measures (VRS), investors need to wait and watch whether public sector banks are indeed successful in improving efficiencies post these initiatives.

Coming to the software sector, the initial disappointment was caused by Infosys, which gave a subdued guidance for FY04. Since then the sentiment towards this sector itself has been rather bearish. This is however not without reason. Indian software companies have relied on the low cost model to sustain their growth, however with increasing international competition this model is no longer sustainable. Thus the strong EPS growth seen in the past may just be a thing of the past unless these companies are able to garner enough volumes. In his regard too the indications are not all that negative. The larger software companies are still able to garner healthy volumes and are seeing healthy topline growth. From here on volumes, net margins are likely to be the drivers of the bottomline.

In both these sectors one aspect is getting increasingly clear. Investors need to be careful while they pick their investment options. Large entities in both these sectors are likely to be the biggest beneficiaries, in case of an improvement in economic environment (global economic environment in case of software companies). Caution needs to be exercised.

Equitymaster requests your view! Post a comment on "Caution while investing". 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.

Parag Parikh Conservative Hybrid Fund: Should You Invest in Higher Debt Allocation? (Outside View)

May 14, 2021

PersonalFN analyses the features of Parag Parikh Conservative Hybrid Fund and explains the potential this fund has to offer to its investors.

Die Hard 4.0 Redux? (Fast Profits Daily)

May 14, 2021

A Hollywood style cyber-attack has caused shockwaves across financial markets.

What Godrej Consumer's 22% Single-Day Gain Tells About My Blueprint (Profit Hunter)

May 14, 2021

The company's FY21 earnings performance turned out better than my estimates but...

More Views on News

Most Popular

Is Intraday Trading For You? (Fast Profits Daily)

May 13, 2021

Do you think you have what it takes to be an intraday trader? Find out in this video.

My Secret to Find Breakthrough Stocks (Fast Profits Daily)

May 7, 2021

I've used this trading technique for many years with great success. I'm sharing it with you today.

Are the Stock Markets Deaf to Covid Agony? (Profit Hunter)

May 6, 2021

Why are markets discounting the economic impact of Covid?

The Key to Profit from India's EV Revolution (Profit Hunter)

May 7, 2021

Stocks you must consider investing in before buying your first electric vehicle.


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


May 14, 2021 (Close)