LIQUIDATE OR BUY
Everyone loves a bull market. But this market is susceptible to the law of gravity. â€œWhat goes up must come downâ€?. In an accelerated climb, since the start of this calendar year to mid-May the Indian stock marketâ€™s Sensex rose from 9,422 to 12,535 points. In other words, It delivered an absolute return of about 32% during this period. Later on the market has been spiraling downwards eroding investorsâ€™ wealth substantially.
When the market crossed the 11,000 mark, several analysts and stock market experts had predicted that the rise was unsustainable and unwarranted based on actual corporate performance. A correction was long overdue but such a â€˜free fallâ€™ was unprecedented.
Global concerns of rising interest rates, a meltdown in commodity prices and the pulling out of Foreign Institutional Investors (FII) are broadly the factors behind this carnage. However, the problem has been compounded with several retail investors undertaking panic sells.
The economy in the last quarter of financial year 05-06, registered an absolute growth of 9.35% in the GDP. Compare this growth rate with that of other emerging markets such as Brazil. Brazil, in the same quarter, registered an absolute growth rate of 1.43%. Therefore, the Indian stock market still holds lot of sheen. FII will once again be attracted to India.
The recent correction has provided the much needed opportunity to enter select stocks from specific sectors. Some of the sectors that you can look at are:
Capital goods and construction
Approximately, US $300 billion is expected to flow in domestic infrastructure over the next 2-3 years. This will give a huge boost to the financials of the companies belonging to these sectors. Further, most of the companies already have a strong order book in place.
Rising interest rates and a possibility of a weakening rupee (vis-Ã -vis the US dollar) make this an attractive sector. Moreover most of the companies are debt free and are sitting on decent amounts of cash reserves.
The abolition of the quota regime has placed the Indian textile industry on cloud nine. Rising export of Indian garments and home textiles spells success for this sector.
This sector is expected to grow at a CAGR of 12-15% over the next years, on back of rising demand, improved transport facilities and easy accessibility to loans. With India being considered as the choicest place for automobile manufacturing activity by international companies the growth rate can be still higher.
The construction industry has been one of the biggest beneficiaries of the market rally. Therefore, the effect cascades down to the cement sector. On back of the growth envisaged in the construction space, this sector can only move forward.
We can safely conclude that volatility notwithstanding, the markets will bounce back to its higher levels. With valuations still attractive and the robust corporate performance is expected to continue, Take the opportunity to therefore invest in them today when sensex is lower and be prepared to give at least 2 to 3 years for your investments to grow.