Sensex in Sensible Zone, but sentiments weak

Consolidation is the mantra, Sentiments to dictate trend
First of all a very big hello to all the readers after a gap of nearly 4 months, it's time to take stock of the markets. No, I was not totally away from the market, but surely off the blogging mode. The markets are out of the blues of January, but the confidence has not come back. Investors still get jittery as the sensex moves up, fearing a repeat of the crash and yes, the sensex has not been able to move consistently at higher levels. There are ample reasons with sensex for not doing that.

Aftermath of Crash Prevail
Investors had burnt their hands in the crash and have ended up getting stucked in their investment which are still 30 to 40 % lower than their buying prices and that is the main reason that the aftermath of the crash are still haunting them. Not only this, investors who had put in their money at better prices have seen their profits eroding away. Now this situation acts as shattering the confidence of Investors.

Sensex is consolidating at current levels, building back
Those who thought sensex levels post January crash would be a bottom were taken for a toss and sensex went on to test the patience of investors. It was in March that sensex finally landed near its bottom and since then it has recovered around 1500 points to settle in 16 K plus zone. My view is that there is no reason for the sensex to skyrocket from these levels in near future. Even sharp fall from these levels is not likely to happen unless sentiments get hunky-dory again. Sensex is in the process of recovering from the shocks.

Sentiments to dictate Trend
Well, the bad news is that good news is not coming in. The market is yet to recover from the shocks of sub prime crisis (ah...good that we didn't heard any bank announcing write-offs). The global sentiments are still not showing signs of positive trend. US home mortgage market is still in doldrums and the recession is looming large on the US. Crude has recently touched all time high. Back home inflation has been the major concern and no relief on this front is expected in at least next two months. With BJP taking over Karnataka, the political scene has also come under shadows and though it may not be a immediate concern, markets may take a cautious note of the developments. On the Economic front, we are optimistic to grow at 8.5% this year (though the estimates have come down from earlier claims of 9-10% growth rate).

Investors are missing from the Markets
If we look at the data of Net Investment done by the FII's and mutual funds in the markets this year, the trend is clear that none of them had put in their money in India on a net basis.This validates my view that sensex consolidation will continue for some more time and a sharp rise is ruled out in near future. If it comes due to trading motives, it will track back equally sharp. FII's have been net seller on a year till date basis though MF's have done some buying in January. Moreover, the net Investment has been quite lower as compared to last year. If the markets have to stage a smart recovery, FII's have to participate in a big way and currently the data doesn't support this. The silver line however is that FII's have maintained their confidence in India's growth story and hence the buying would happen, sooner or later.

What should Investors do ?

One strategy would never fit for all the investors since Investor's risk profile , current portfolio and outlook differ from person to person. However, as a thumb rule, keep away from herd mentality. Normally people start buying when when markets would have already reached or nearing its highs. If you have patience to hold for for a period of six months to one year and choose a fundamentally good stock, the chances are more that you would be rewarded handsomely.

Now is the time when people are afraid of entering the markets. It's the herd who is filled with fear and if the legendary investment experts are to be believed, this is right time to quietly do the shopping for your long term investments. Again, stagger your buying to advantage of market volatility. I would be on the prawl to locate some good investment opportunity for this season. Would share with you at an appropriate time.


Anonymous said...

Hello Sir,
Thanks for the wonderful post. I hold 200 shares of Nagarjuna fertilisers. what is your outlook for this sector and this stock in particular ?


Anonymous said...

Is it the right time to buy or should I wait for some more time ?


Rajesh Soni said...

Hi Jyoti,
Well , the outlook for this sector is good. UPA government's thrust on agriculture and recent waiver of farm loans is going to give a boost to farming activity and it turn the prospects for Fertiliser industry should be bright.

For Nagarjuna , I don;t know at what levels have you entered the stock, but you could do well by holding it for next 6 months.

Rajesh Soni said...

Hi Amit,
As I mentioned in my post, markets will have downward bias in coming days and one should invest at lower levels with 1 year time frame. Bottom fishing might be a tough challenge, hence I recommend buying in small lots.


Great report