Unlike at the time of Diwali in 2010 when the Sensex was trading at an all time high level and offered an opportunity for profit booking,the fall this year that continues even now offers an opportunity to invest for handsome gains in the medium to long term. A large number of blue chip stocks are available at a significant discount to the levels they were trading a year ago. A look at the BSE 200 between November 5,2010 (when the Sensex closed at an all time high of 21,004) and October 18,2011 shows that only 29 stocks out of the 200 in the list have witnessed a rise in their share price however the remaining have fallen,some to the tune of around 75 per cent in the same period. Infrastructure and real estate stocks have led the fall on the back of slowdown in the sectoral growth and high interest rates scenario but there are many large sized companies that are relatively strong and are available at significant discounts. While State Bank of India is trading at a discount of 47 per cent to its share price on last Diwali (November 5,2010) ,L&T is down 38 per cent. Even Reliance Industries,ICICI Bank,Axis Bank and Tata Motors are down by over 25 percent. Experts suggest that we may be at the end of the interest rate cycle and while stocks have fallen significantly,it is a time to pick good stocks but a staggered investment approach and investment horizon is a key factor. While it makes sense to invest at current levels from the valuations perspective,a better way to do will be to start putting money in the SIP form. Another thing they need to keep in mind is investment horizon and since the outlook is not very positive both from the global and domestic point of view,do not enter with a one year perspective but with that of 2 year or more, said Pankaj Pandey,head of research at ICICIdirect. Since the markets can be very volatile,the idea should be to get into good stocks,accumulate them over the next three to six months and hold them for around two years, said Gaurav Dua,head of research at Sharekhan. When picking up stocks,while the percentage dip should be taken into account the balance sheet analysis of the companies is a must and the money should only be put in stronger companies. While the infrastructure companies have fallen significantly experts say that their balance sheet is under pressure. If the interest rates remain at elevated levels,balance sheet of infra companies could come under further stress and the impact of the same would be visible in banks especially public sector banks because they have 20-25 per cent exposure to infra. In a relative sense banks are more favourable, said Pandey. Some say that infrastructure can end up as a value trap. While they are cheaper with respect to banks,they carry higher risks. Getting into companies that are large but their stocks are trading low and have all the negatives priced in can generate good return over the next two years. It is time to accumulate stocks which are at lower end of trading valuation multiples and have a proven track record. It will also be better to buy stocks in those sectors which will have positive fallout with the reversal of the interest rate cycle, added Dua. He added that Maruti Suzuki,State Bank of India and BHEL can be good bets for a period of over two years. As the market awaits more clarity from Europe over the next couple of weeks,the RBI will come out with its monetary policy review next week and both hold a key to way the markets behave in the near term. So while the markets may remain volatile and move up and down on the news flows,it is time to enter the market with a staggered approach with an investment horizon of over two years. sandeep.singh@expressindia.com
