Equity Investing - Its time to buy or sell

Equity Investing – February’2012

It’s a time to sell or buy

   It is just a one and half month of strong upward rally after the continuous down fall since November’2010 i.e. almost 14 months. Except for the first few months of this period, retail participation had been very negligible.

   Though there are now beautiful smiles on the face of the equity market participants, but I am really sad for many reasons on behalf of varied class of small investors, those reasons could be :-

   As advised by many experts on the new channels, retail participants were waiting for the Sensex to go 12000 or Nifty to 4000 and hence could not buy equities at lower level. or

   Those who had parked funds in the fixed return instruments and looking with the great pessimism to the equity markets, they could not dare to shift their funds from fixed returns instruments to equity related products. Or

   Even if some of us, could do some courage to buy equities at the lower level of the markets, but sold the same for small gains and now sitting with idle cash. Or

   Whatever Small Investors had invested in the equities during last Bull Run, they are vigorously tracking them to find out exit at par.

This is the story of millions of small investors of equity market.   

 

   Suddenly all has changed in last 45 days of this 2012, every thing started looking rosy. Now question is whether this is the time for BUY or SELL.

   Let us first take the view of the present conditions and also consider the various factors which could affect the market movements :-

   Liquidity During the month of January’2012, FII’s have infused the funds to the tune of Rs. 11,089.30 and invested another Rs. 11000.00 crores approx in the month of Februry’2012 till now. It is interesting to note that FII’s were net seller to the tune of Rs. 3642.40 Crores in whole of the calendar year 2011. Such strong inflows can not continue forever.

   Valuations Nifty is currently trading at a PE of 19 X as against the PE of 25.59 X when markets were at its peak in Deepwali’2010 and as against the PE of 16.46 X of recent lows made on 16.12.2011. Still Nifty is trading around its long term average of 19 PE. Scaling higher and higher upto 22-24 PE can-not be ruled out.

   Vicious matrix of Interest Rates, GDP Growth and Inflation now started showing signs of stability. Inflation started cooling, has given signals of policy actions with regard to lower interest rates. Hence for next full year, a regular and consistent downtrend for interest rates could be seen.

   Political stability of own country Last year witnessed a total inaction on the part of the Central Government with regard to policy making, effective implementation and directionless approach. The results of the ongoing elections in the five states, may give some boost to the lost morale of MMS Government, which may result into some policy action.

   Union Budget is scheduled to be tabled on 16^th March’2012, which may bring positive surprises for Industries and Corporates. The widening gap of fiscal deficit may be checked by auctioning of 2G spectrum in view of SC Directives. A blessing in disguise for the Union Government. It is an opportunity for MMS to rebuild its lost credibility by making constructive efforts towards Implementation of GST, DTC and other reforms.

   Q-3 Corporate Results reflects 15-20 % growth on YOY basis, despite high interest rate regime, which likely to improve further because of lower base effects in the quarters to come.

   At international levels, Dow Jones & Nasdaq of US is being traded at its 52 weeks high. Dollar at around Rs. 49-50/$ and Crude at around $ 100 + , any further upmove here could be a great dampner for Indian economy.

   Nifty has broken out upwards its 200 DMA of 5200 and is poised for upward rally. 5600 NIFTY still offers a major resistance zone, which once broken upward, will see still a faster upmove, which again could not be good for the long term sustainability of our equity markets. Now I feel, markets should rest a while and take sufficient time for consolidation within the range of 5400 – 5800.

   The most asked question is should we buy at this level or wait for markets to correct. But if you have missed the bus, it would be advisable not to chase for it. Wait for appropriate correction, may be after a week or a month so. Now markets are in “Buy on dips” and still, will offer better returns who continue with their holdings.

BUT, Investing in the toughest times are always more rewarding.

 

HAPPY INVESTING

CA P.K.DHAWAN