Start Buying In Small Lots

The bailout packages introduced by the US and liquidity infusion by central banks all across the globe have started yielding results. The global liquidity situation has improved. We have seen in the past that money going out of the emerging markets to the US as investment in the US was considered as the safest bet. However, with the US announcing increased monetary supply, the dollar started showing weakness which led to money flowing out of the US.

It is too early to say whether the bull run has started or not but investor confidence is back for sure. We expect correction to be less sharp as every decline shows an emergence of buying interest. We saw a sharp fall in the market in 2008. The economic slowdown witnessed in India came along with a sharp rise in commodity prices. Rising fiscal deficit and high interest rates are major concerns even today. The RBI has tried its best to cut down the rates but the banks have not reciprocated equally. I think the current level of the market is such that any positive development on FII inflow front will help the stocks to move up sharply. However, from here onwards, stocks will move depending on the merits of the key issues namely political outcome of the election, interest rate movements, corporate earnings, management commentaries on future outlook and rupee-dollar movement. This time the pre-poll alliances have not happened in many regions. Hence, we feel that post-election, the process to form the government will take more time. The market is likely to be quite volatile post-election results but before the formation of the government. There is enough liquidity now, the policy rates have reduced and I think that this will help banks reduce the interest rates. Banks can also look at cutting down the deposit rates and maintain the NIMs. There should not be any problem in cutting down the deposit rates since the inflation is near to zero and, as such, the real interest rate has to fall anyway. Any fall in interest rates would also help the corporates to save on the finance cost. [PAGE BREAK]

I think the recent news on Satyam (takeover, new projects, etc) will help investor confidence with regard to corporate governance. I hope such incidences do not happen with India Inc ever again.

Real estate, capital goods, engineering and infrastructure took most of the beating during the downfall and investors have a lot of concerns about the industry as well as the performance of the companies. These sectors would bounce back sharply. Auto is a defensive sector and has outperformed the indices and will still do so in the future. Pharma is also a defensive sector outperforming the major indices for the first three quarters of FY09. However, with certain issues of Ranbaxy and Glenmark, the rest of the stocks also corrected in the latter half of FY09. We still believe that pharma looks quite attractive at current levels.

Try to invest in relatively large companies with known management as they are available at attractive valuations. Please analyse the past track records of companies before investing. As far as possible, avoid getting into leveraged transactions with F&O trades. Invest with at least one year of horizon. If at all one needs to trade, a small portion can be utilised for trading with a strict ‘stop loss’ system. Do not rely on rumors. Do not expect super normal profits. Review your portfolio with a professional advisor. Keep booking profits with a target rate of return in mind.