Markets Take a Toss

The recent meltdown has not been restricted to Indian markets alone. Wall Street and other major world indices have slipped as well. But Indian investors are asking: Is the fall over? Will the Sensex fall below the 6,000 level? Is it time to sell out or buy more stocks?

The Road Ahead
Though nobody is betting on a prolonged bear phase, signals point to a global slowdown. Last week, tech companies like IBM, Samsung and LG Electronics have reported profit declines, indicating that the tech party may be now slowing down. At home, Infosys has indicated a weak quarter April-June ahead and TCS, the largest Indian software company, has reported a quarter-on-quarter decline in profit. Adding to the woes, oil prices are still ruling high and interest rates are on the upward journey. Metal prices, going bullish till recently, have also started declining on the London Metal Exchange.

Foreign investors, who were driving the market in the last one year, also look bearish. The month of April also saw FIIs turn net sellers for the first time in the calendar year. FIIs 8211; who invested Rs 16,170.10 crore nearly 3.7 billion in the calender year 8211; were net sellers at Rs 58.30 crore by last Monday. Moreover, the Sensex rally from 6,000 to just below 7,000 was so fast that the market will have to correct the anomalies. Dalal Street veterans, however, don8217;t foresee a big crash that will take the Sensex below the 5,000 levels. If the global economy gets into a bearish cycle, the Indian market will also enter into the bear trap. But the consolation is that it8217;s a slow process and will take months.

Investors, watch out
What shall investors do? Experts like Marc Faber have started saying that emerging markets will underperform and in India many sectors are still overpriced. 8220;I expect the bearish trend in the market to continue for the next couple of months or so,8221; says Alok Vajpeyi, vice chairman and MD, Dawnay Day AV Financial Services.

Fund managers have started preparing for a bear phase. So are foreign institutional investors FIIs. Metal and tech stocks have already taken a beating. The next could be auto and petrochemicals, followed by textiles and capital goods. Pharma was already out of the radar of many even before the 8216;bear8217; reality sank in. Even research reports prepared by market intermediaries say 8216;don8217;t expect a rise in valuation. It has already reached the right levels8217;. 8220;The market is trading at about 11-12 times of the FY2005-06 earnings which seems reasonable considering the expected corporate earnings growth during the current fiscal year,8221; says a research report of IDBI Capital.

This means the market can go down only from the current levels. On the other hand, there8217;s no improvement in the economic fundamentals in India. Factors like oil prices and a slowdown in world economic growth can further adversely impact India. Mercifully, the bear phase is not expected to be a long-drawn one like the mid-90s.

The bottomline: though the Sensex may not go down steeply, neither will it go up steeply. So long-term investors three years and more need not worry much. But short-term investors should have a relook at their portfolios.

Inputs from: Arundhati Bakshi-Dighe