"Time Machine" April 15th 2008.

"Time Machine" April 15th 2008.
An instruments every body want use at least once in their life time to go back to the past and one step ahead into the future to fascinate the life in the realm of fantasy. In my view of equity market most of the folk are started using their times machine to predict the sensex targets for the year. Let me refresh our senses about the markets what was happening in the market from last fourteen months . U.S. Federal Reserve FOMC was increasing the fed rate during June to Dec 2006 , in Jan 2007 monetary policy RBI was hawkish about the inflationary situation in Indian economy and started increasing the CRR and Repo rates . Immediately market tested lows because of the N carry trade in the month of March 2007 and after crossing all barriers like interest rates hikes , high inflationary environment from Jan 2007 to August 2007 , political uncertainty in September 2007 and sub prime scares from U.S economy, Market reached life time highlevel of 21,810 by Jan 2008. Indian retail inverters were obsessed in investing in equity , i knew some people left their jobs to test their luck as DAY TRADERS. Now things are moving against the uptrend in the market. Where are the view ...? Analysis..? Analysts ...? who were discussing about 25,000 and 30,000 levels of sensex in November and December 2007. what happened Mr Christopher wood of CLSA and Shankar Sharma of First Global for not appearing on the media to discuss the up trends in the market at the current levels. Who dares to talk about the rosy trends in the market and new highs ..? now ! .Clearly sentiment of over exuberance led the market to this situation .
I believe Time machine is the title to my article apt to the current situation . Within a single week Indian fundamentals are changed and we lost our shine over night ? these are usual question one should ask them self , if anybody want to participate the India's growth story , recently i was happened to address retail investor forum ! they were asking me about testing May 2006 lows of the sensex. Every body speaks about India's domestic story from a while , is the true domestic story reflecting in the markets ? or waking up in wee hours checking global cues and trying predict the Indian Markets !.like met department forecasting the monsoons and cyclones.
During the period 2001 to 2005 sensex was trading below 15 year Price to Earnings median .If we want to travel into this passed period we don't need a time machine, present periods in the markets permits you to travel into the past lows. " Equity market is a place where every body knows the price but not the value ".If we want to be a successful investor in life , but not a seasonal investor who always invests on the tops of the market and try to time the market one need to follow all the market parameters ,but for a savvy longterm investors following all the market parameters is not required but one theory weather the current market levels justify s the earnings growth or not is crucial , one need to identify the growth or froth is vital. ,If you are convinced that the stock Market is nothing but a crapshoot , that investing in it is a gamble or that it is manipulated by large institutions to the detriment of small individual investors you need better rethink your involvement , if you operate from any of those premises you are likely to come to grief . you will buy or sell on rumors tips and gossip you will attribute your success or failure to pure chance or to the unknown actions of others. The impact of sentiment on the market is ,when the market is in uptrend means everybody speaks about higher levels like 25 k , when it is down trend everybody look at far lower levels ignoring all the ground realities. Market tendency is when it is a bull trend , Market will digest the negative news flows and a small positive news also will fuel the bull run . When it is bear trend market will ignore all the positive news and move with negative bias. Market runs on liquidity , valuations ,interest rates and finally the sentiment as key drivers , we have to vigilant on these drivers always.
Berkshire Hathway , Warren Buffect's incredible company 10 year charts shows the dramatic increases of mid-1990s, the stock price had substantial gains and it went through the bear market phases .During the years 1994 -98 , the stock was a four bagger , increasing the original amount by four times .For the full 10 years it was a five bagger and nearly six from14,450$ to 91,900 $. Earnings per share (E.P.S) is purely determined by the company performance but not the FIIs activities, these are the times to accumulate the gems at fair price . Prices of the companies will change on daily basis but not the value of the companies .
Whats road ahead ! Traditionally fourth quarter results will be strong and in line with the expectations , but the scare and culprit to the market is high inflation which is above 6 % above the comfort zone . As a fastest growing economy , Indian economy is in revival stage of the business cycle, so inflation tend to spurt every year. if you observe exactly year back our inflation was around 6 %.when the inflation is high equity is the best avenue of investment to beat the inflation. In my view funds flow is not a problem , always money will chase the growth . Caveat is weather the growth will continue at this pace or not is vital !.If we observe the market trends ,leader ship is coming from different sectors in different phases of market times . For a matter fact about Rs 17.57 lakh crores of investment is required over the next five years in developing ports, frights corridors , power plants and airports .The engineering and construction sector presents another opportunity, Consumption story is in tact , Corporate India still have to exploit the rural India.
These are the testing times to the investor's confidence on the market with out confidence we don't get our berth to Travel in the Time Machine to create Wealth in the next level.