Best Time To Invest In Blue Chip Stocks

Just six months back, we were all highly optimistic, but today, we are highly pessimistic. Failures of financial institutions across the globe, particularly the US on account of bad debts, have created a ripple effect. We all know the reasons for these failures, so there is no need to explain. But at the current growth rate of the economy, I personally feel that it is the best time to invest in blue chip (index) stocks at the current levels with 2-3 year horizon. Our economy growth is still far better than other world economies. Besides, Indian investor's herd mentality changes too fast, that is, they buy when everyone buys and sell when everyone sells.

The global financial crisis is now a common word. Everyday in the morning you switch on a news channel or open a newspaper and see that some or other banks are in trouble in the US, Europe or Japan. Our markets too are controlled by FIIs and banks are exiting with large sell orders everyday. My gut feeling is that these same FIIs will enter again and buy when the markets are up 20 per cent from the current levels and become stable. As for the rupee, I feel it has againt ested the 49-50 levels against dollar and will remain between Rs 45-50 for six to 12 months. Inflation should be in the range of 9-13 per cent for next 3-6 months. I expect the GDP growth to be a 7-9 per cent. I am bullish on index (Sensex) stocks which cover 85 per cent of the markets (large caps). On sectors, I am bullish on large caps stocks in telecom, FMCG and capital goods sector. In my view, the most important trigger for the market is sentiments across world markets, liquidity and major FII buying instead of persistent selling.

There is a need to discuss strategies with government on how to counter act FII selling. FIIs have sold shares worth US $ 10 billion (about Rs 45,000 crore), which has created major impact on our markets. If they continue to sell for their own reasons, we need to have investments of Rs 45,000 crore by domestic institution and investors. This is not an unmanageable sum and can be coordinated by prodding some of the banks, insurance companies, PF and corporates. If this is done, the market can stabilize. Crude oil price and inflation were the only factors two months back which used to trigger the markets.

Currently, however, it does not impact much, but if crude stabilizes between $70 to $90, we would be in safe zone. Our stock selection process is to first identify which sectors to invest in and within that, high growth companies with good cash flows, healthy order book, replacement cost and less or zero debt. I would advice investors to buy selectively at regular intervals and also during panic days, keeping the above-mentioned sectors in mind. They should not react by selling good stocks in bear market anticipating buying at lower levels. Also, they should book 50 per cent profit if their stocks go up 50 per cent.