• OCTOBER 22, 2003

Poll: At 4,800+ levels, I would...?

Indian stock markets have continued to rise unabated over the last few months as if there is no tomorrow. This is evident from the fact that they have appreciated by almost 70% (till last week's closing) since the rally began in April this year. And mind you, this is without any significant correction on its path to achieving the 4,900 (Sensex) levels last week! The correction, which took place on a couple of occasions during this leg of the bullrun, is not worth mentioning (see chart below). However, now the question at the top of investors' mind is, what stand should one take now? Whether to book profits, or to hold, or to continue buying?

Keeping this in mind, we conducted a poll on our website and the results, trust us, did not take us by surprise, especially at the current index levels. The poll question was, "At the current index levels of over 4,800, your investment strategy would be to..." The poll result is depicted in the chart below.

Out of the people who participated in the poll, 22% were of the opinion that they would be buyers even at the current index levels, whereas, the remaining 78% would refrain from doing so, if we can put it that way. Out of the latter group, around 39% opined of booking profits, while the remaining 39% opted for the wait-and-watch policy of staying put with their existing investments. Considering this sample to be representative of the general market view, we believe that the onus of pushing the markets to newer highs now remains in relatively fewer hands.

Amidst all this euphoria, what is our stand?

We can comfortably place ourselves amongst the majority above because, as we have mentioned in the very recent past also, that the markets have run up too-fast-too-soon and some amount of correction and consolidation is important for the markets to sustain at higher levels. This is because corrections attract fresh investments, not only from the existing players but also from newer market participants, who have either not participated in the current lap of the rally or have exited too soon from the same. While the markets continue to trade at 13x-14x forward earnings, it still remains attractive from a longer-term perspective and the 'investment in Indian equities' case only gets stronger when we compare the same to some of the other developed markets which are trading at over 20x earnings, where forward earnings growth rates would be just about 2%-3% compared to India's 6%+. Our faith in Indian equities is also reaffirmed by the fact that there have been huge foreign inflows into the India stock markets over the last 5-6 months.

So, if one is a long-term investor, he/she can consider investing in well-researched stock specific stories, which are yet to unfold, as they will continue to provide value to the investor over a period of time. Since it is very difficult to time the markets, slow and steady building of the portfolio by investing in a systematic manner would help in optimizing returns by taking advantage of market rise and falls. Remember, 'equity' as an asset class has outperformed all other 'investments' over the longer-term. But, no speculation please!

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