Market Watch: Is sensex losing senses ?

Dear Friends,

It's a great pleasure to be back on the blog after a gap of nearly one month. The last one month was full of action with sensex touching landmarks of 11 k and 12 K. Its looks like that the Indian stock markets have found a unleashed energy source of relentlessly moving up and as if there is no doom day to happen !

The recent leg of the bull run was dominated by the large cap stocks and those who have bought Reliance Industries stock would be jumping with joy. The stock has delivered excellent returns to its investors and has jumped from 700 to 1000 in 3 months. The tech counter was buzzing with strong numbers posted by IT companies and robust guidance by the bellwether stock Infosys. My Investment Idea on Gujarat Ambuja which was given at a price of Rs. 67 also reached its target (actually exceeded it in a big way) and is currently quoting at 120.'

Aksh optifibre saw a lot of volatility and I saw some hot tempered comments from some of our viewers when the stock touched a low of 62 before striking back to Rs. 80.

Its time to take a stock of all the investment ideas discussed and I will shortly start reviewing each idea in the current context. Will also post some new ideas.

Coming back to the markets, Indian stock markets recent run have proved the point which I wanted to make in my earlier article on India's growing dominance in the world markets and the maturity levels of the Indian stock markets.

But at the same time , I want to let you know that we should understand the sensex psychology before getting sweeped away in the wind of fast-bucks tactics. India Inc. has been successful in selling its growth story to the foreign as well as Indian investors and what we see as a result is the mad rush to occupy a pie in the Indian growth by Indian as well as foreign institutions. No body wants to be left behind. In such scenario, the supply of stocks gets sucked up by the unrelenting demand and hence the stocks prices go sky-rocketing.

In such a scenario, the markets starts factoring even the 3 years forward growth and buys in anticipation. Hence, we should understand that the value we are putting on a stock is based on the assumption of a particular performance of the company for next few years and hence whenever the investors would find a mismatch between the anticipation and actual performance the stock will be punished, sooner or later. This will lead to volatility in the stock markets.
Hence , Investors are advised to invest in fundamentally sound stocks at this juncture and keep themselves away from purely momentum stocks.

If you are trading on some news or momentum, it is advisable to be disciplined and not convert those trading moves in your investments.

On my headline for this post, No, the sensex is not loosing its senses. The leading world markets are currently trading at 1 times or more their GDP to market capitalisation and Indian stoks markets are about to touch that magic number. This shows that the stock market is truly reflecting the growth pattern of the economy.

The future direction of the markets will be ascertained by the ongoing results season. Invetsors are advised to regularly keep booking profits henceforth and if the momentum continues to get reinvested to enjoy the next round.

Will dwelve upon some stocks that will outperform their peers in the next post !

Happy Investing !