A 40 per cent rise in the Sensex from the lows of early March has taken investors by surprise. Even market experts are baffled and are trying to find explanations for such a sharp rise. This is the kind of rebound I have always been talking about when I say that investors should not try to time the markets, looking for the bottom. The first stage of rebound usually occurs this way and most of the small investors do not even believe that the next bull run may have begun since all bull runs are born in scepticism.
Whereas a large number of investors may believe it to be yet another relief rally of the bear markets, the fact remains that many of them feel they have missed the bus yet again. A staggered investment approach would have given a return of at least 25 per cent on the average price paid for the stocks you have always fancied. The fact of the matter is that many of the stocks have notched up gains of as high as 100 per cent or more from the lows they recently made.
The big question that everyone seems to be pondering is, “Is the worst over for the markets?” There are two ways of looking at the picture. Those who are optimists and believe that the markets have bottomed out say that all bad news has already been discounted by the markets and it is just the reporting of these news that is taking place now – be it the dip in exports, IIP or the quarterly corporate results. They think that reporting of such news will actually prompt the RBI to go in for further rate cuts sooner rather than later and may in fact give a further boost to the markets. Mind it, the market discounts the future well in advance to indicate what lies in store for the economy at large and corporate sector in particular.
Moreover, there has been a continuous flow of good news from abroad and within the country. The only factor feared now is a fractured mandate from the ongoing electoral battle. Even this is not considered a factor serious enough to influence the markets since the latter have of late started to keep themselves fairly insulated from politics. Also, the much touted decoupling theory for Indian markets will indeed come into play now and is likely to witness a much sharper rise compared to leading markets abroad. The Indian markets will be amongst the most attractive investment destinations for foreign capital due to the second highest growth rate it is likely to achieve for the year 2009-10.
Interestingly, most investors were expecting the markets to bottom out post-elections when they were all planning to buy. This may not happen, though I do not entirely deny the possibility of a correction happening post-elections, that too if the mandate is too confusing to have essential implications on reforms and the ability of the new government to fight the ongoing slowdown in the economy with full vigour. However, with 40 per cent gains already made, investors should wait for a breather since the next correction may be their last chance to enter the markets at attractive valuations.
The pessimists do not expect a V-shaped recovery to happen soon. Though the demand for some consumer goods have started looking up with the sales of commercial vehicles and cement despatches creating room for some optimism, leading indicators such as bank credit and non-oil imports leave hardly anything to cheer about
The pessimists do not expect a V-shaped recovery to happen soon. Though the demand for some consumer goods have started looking up with the sales of commercial vehicles and cement despatches creating room for some optimism, leading indicators such as bank credit and non-oil imports leave hardly anything to cheer about. The government has already spent its entire fiscal fire power. It remains to be seen as to what the next government will do. It is widely believed that whichever coalition comes to power, public spending and subsidies will rise at the cost of fiscal slippage.
Kalindee Rail Nirman (Engineers) Ltd
CMP: Rs 109
Kalindee Rail Nirman is engaged in installation, commissioning of signalling and telecommunication projects, and execution of gauge conversion projects for the railways. It is the only company, except IRCON, doing a total turnkey job for Indian Railways. The company’s future is governed mainly by the growth of Indian Railways and the Metro Rail Transport system. The Government of India has planned to spend a massive amount on construction and infrastructure-related projects to be spent within the Eleventh Five Year Plan. This is likely to further swell the already solid order book position of the company, which is going to be one of the biggest beneficiaries from the dedicated freight corridor proposed by Indian Railways connecting Jawaharlal Nehru Port, Mumbai with New Delhi, Ludhiana and Kolkata, a distance of 2,763 km, at an estimated cost of Rs 51,000 crore. The low promoter stake and L&T already acquiring slightly less than 15 per cent stake makes the company a potential takeover target. An investment with a 2-3 years’ time horizon can give decent returns.
The author is retired as Professor from the University of Delhi in 2024. He is an alumnus of IIM Indore and holds a PhD from the Delhi School of Economics. An investor activist and former member of various SEBI committees. He taught Capital Markets and Investment Banking at leading business schools of India.
