The markets have shed a lot of flab and future direction is still unclear. International factors such as the impending US slowdown, the appreciating yen and the growing US deficit, uncertainties in the Chinese stock market, and rising crude prices have started showing impact on the Indian market.
There are concerns on the domestic front as well. With inflation at a near two-year high, the government’s main effort seems to be to tame it by resorting to a massive squeeze in liquidity through increase in interest rates and CRR. This has taken a heavy toll on interest-sensitive sectors such as banking and financial services, housing and construction, automobiles, consumer durables, and so on. With the rupee touching a nine-year high and hovering at Rs 42 a dollar, export-oriented sectors like IT have taken a severe beating. With Wipro, Infosys, TCS and Satyam accounting for substantial weightage in the sensex, it too has suffered.
The drubbing of the ruling party in recent elections may compel it to resort to more populist measures which may not be good for the market’s long-term health. It seems to have effectively shelved reform with the word not finding a mention even once in the Union Budget of 2007. This is also the time when monsoon-related uncertainties start surfacing.
In this scenario, an investor should stick to the age-old strategy of playing the long-term game and avoiding short-term temptations. With the great Indian growth story still intact, making money is not just about taking risk or avoiding it. It is about managing risk prudently. So, look for sectors which are relatively safe such as power, hospitality, pharmaceuticals, media, logistics, food-processing, and so on and try to spot the stars of tomorrow – be it in value unlocking or hyper growth. I recommend two stocks – one a value unlocking one and the other a high growth one. Both could be multi-baggers.
