Investment Guru rules ; Sensex turns 10K

With liquidity refusing to dry up, Is 11K on the cards ?
The BSE sensex touched the magical number of 10K in yesterday's trade, much to the delight of the Investors. When the experts were getting nervous at the beginning of this year and claiming that the road to 10K would not be easy, Investment Guru Blog showed the right way to the Investors. The blog carried an article stating that 10 K would be achieved not later than by March,2006.
With the pyschological mark of 10K beyond us, certain experts have again started ringing caution bell. But let me tell you, this time they are not fully wrong. I will explain you 'why' later in the article.

The 10K events has aslo carried uncertainty in the minds of Investors as to what should be future course of action. Should they books profits on the table or should they hold in anticipation of further rally ? Lets take a look at what is going in in the markets.

What's up with the India Growth Story ?
The Q3 results have been satisfactory except for the oil marketing companies. The aggregate profitability of Corporate India (excluding these oil marketing companies) has grown by 23 %. The GDP growth rate is also expected to outperform the economists estimate of 6.5 to 7%
Foreign investors are still queued up to invest in India.

India Vs. Other growth economies
As per current estimated , India Inc is trading at a P/E of 18. This looks reasonable if we compare it to the P/E of other growth economies like Taiwan, Hongkong, Korea which are currently running at P/E levels of 16-21.

The above data may suggest that the valuations going ahead would look stretched and the Indian markets may have lost its competitive advantage to other economies. However, Investment Guru is of the view that Indian economy has a potential which is unmatched to these econmies and this will held the markets in a strong position in the long term.

FII & Retail Combo
FII's have pumped in arounf $3 Billion in the last 1000 point rally. The US and Japanese are still queued up to invest in the India story. Another interesting thing was that this 1000 pts. rally was not fuelled only by FII's, but a equal credit goes to the retail investors who have participated in the rally.

What's hot, what not ?
Though the past rally has been broadly secular in nature across caps and sectors , the sectors which are expected to remain hot would be Software, Pharma , Private sector banks, aluminium, copper and infrastructure.

Steel and PSB's may show some stagnant growth and the oil marketing companies would be picked only by those with contrarion approach. The upstream oil companies will continue to attract big ticket investments. The outlook for telecom sector is stable with negative bias due to pricing pressure. Auto & Auto ancillaries would continue to be performer.

A note of caution
Since the markets have reached a stage where the stock prices are driven more by liquidity than pure valuations, it is advisable to take caution for the near future. The traders are busy making money with the volatility round the corner and investors should differenciate good stocks with momentum stocks unless they are in trading mood.

A special note of caution for the recently listed IPO's which have seen unrealistic valuations. Please check the fundamentals and growth potential of these stocks before investing in them.

Investment Guru will continue to guide you through this exciting journey of the Indian Stock Markets

Happy Investing !!