• JULY 3, 2000

Taking a view on the market

The fact that the benchmark BSE Sensex gained over 9% during the month should bring cheer to the markets. However, most investors continue to be nervous and there is little talk of bullish sentiment.

Investors (including the 'momentum' type) are probably justified in being pessimistic while assessing the performance of markets. This is because growth during June masks a large period of uncertainty, which still continues to plague the market. The Sensex closed at the 4,727 mark on 8th of June while it ended the month at 4,748). In effect, during the last 16 trading sessions markets have been hovering around the same levels. In other words, they have gone nowhere since then. The uncertainty has been due to several factors, the key one being large selling pressure from foreign institutional investors (FIIs).

Leading brokerage houses and mutual fund managers are quick to toss a figure of 6,000 - 6,500 for the BSE Sensex by the end of the year. The bullishness stems from rising corporate profitability and the general improvement in business environment. Mutual funds too have become relatively steady in terms of fund flows.

That there is a general bullish sentiment pertaining to the long-term performance of the Sensex should not however be treated just as a 'BUY' signal. Over the years each successive rally has witnessed the wheat being separated from the chaff. Markets are willing to pay more for companies with high quality managements, ethical business practices, transparent accounting norms and sustainable business plans. Investors would do well to realign their portfolios in a manner that offers them optimal returns while at the same time limiting their risk exposure.

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