Rakesh Jhunjhunwala says: Indian Bull Market is Alive

Whats in store for the Sensex now?

With crude prices expected to go down further, the current pullback for Sensex is expected to last till 15,500 levels. In the short run, the Indian markets are expected to outperform other emerging markets due to the current post correctionary trend. Metals still seem overvalued and are expected to correct further. The Construction and Auto sectors will face margin pressures in the coming weeks and one is advised not to take any fresh positions in them.

The Sensex is very unlikely to actually outperform for the entire remainder of the year. It is expected that this year, Fixed Income Funds will give better returns than equities. Keeping this in mind, equity investments and mutual funds are expected to take a hit in terms of new entrants. This might also affect trade volumes during the year.

Mr Rakesh Jhunjhunwala feels that the Sensex will hit 25000 by 2012 but would fail to do much in 2007.He also said that the markets have seen a bull-run since April 2003 and one cannot have a bull market without corrections. The corrections would be testing the investors’ patience and their sheer belief in the markets, he said.

”All the corrections we have had in the last four years have had been deep but they have not been deep time-wise. I think the real patience and the real belief in the equity and in the market comes when the market tests you time-wise. So I think this is going to be one of the deepest and the longest corrections that we are going to have, in what I believe is going to be a very long bull market,” Jhunjhunwala said.

Beta Goes "BOOM"

It is a very common practice to analyze stocks based on their Beta level amongst other key performance indicators. Beta refers to the volatility of the stock. An ideal Beta would be 1. So if a stock has a beta greater than 1 then it would be a riskier investment but consequently, returns if any would also be higher. The inverse is said to be true for a stock with a beta of less than 1.
But that’s where the theory meets reality and reality-check it indeed is, big-time. All the Bull Run coaxed investors who entered the markets in early 2003 when the so called bull run started, thought and hoped that their investments would work based on fundamentals and their analysis and research would give them an edge. With time they realized that speculation had a much stronger hold on the Indian stock exchanges than they had imagined.

Logic gave way to Frenzy Buying and Sheep Calls and soon enough most investors found themselves sitting on a pile of cash. This was good enough even for Private Equity investors when the Sexsex was 21,200 levels. But since January this year, most stocks have hit their 52 week lows. The market has been indifferent in this regard to stocks irrespective of a high or a low beta. All 500 stocks listed on the BSE have witnesses at least 25% fall, 35 amongst them hit with 75% or more. The market has fallen by more than 40% since its record highs. These are unchartered waters for the optimistic Indian Investor.

Understandably enough, it’s not rare to hear investment advisors talk about a bear run and advising their clients to stay away from the markets for a while. All of a sudden, the meager looking Gilt Funds and Bonds seem to be the most attractive investment options.

What is hard to understand is that the same people who were willing to buy a UB Holding or an ICICI stock at a 70% premium a year back are not willing to invest in the same stocks at throw away prices. Take Gabriel Industries for example. The stock had an earth shattering volume when it was trading at Rs 22 a few months back. Today the same stock is at Rs 13 odd which is a 41% fall in the price, but there are hardly any buyers. I am not sure that a bear run has started yet. What has sunk in is, a fear neither chance nor fundamentals working anymore. Investors realize now that with such inflated prices it was only a matter of time when the fundamentals would zoom out of the window and now most of them are scared because they don’t know where the bottom lies. Personally, I believe that this is the perfect time to gather and gather cheap buys at throw away prices. The Hindalcos and the HDFCs at a 40% + discount. The condition obviously remains that the investment should have a long term horizon.