February 28, 2007

Sensex & Nifty: Market trend about to bend?

Filed under: sensex — Kaushik @ 10:14 am

With the Chinese market down 9% yesterday, and the US markets experiencing the largest drop since 9/11, there’s little doubt in anyone’s mind as to what will happen in India. As I write this, I see that the Sensex is down 3.5% to 13,000. It doesn’t help that JP Morgan & Morgan Stanley have come out with bearish calls for India. They point out 5 myths that might mislead investors:

  1. India’s sectoral composition is skewed towards sectors that trade on a higher multiple (due to their non-cyclical nature).
  2. India’s high Return On Equity (ROE) justifies its premium valuations.
  3. Equities are attractive relative to bonds.
  4. Returns have only played catch-up with GDP growth.
  5. Indian equity valuations compare favourably with history.

The key question is whether we are seeing the trend in global markets making a 180-degree turn - most markets have been going up & up since the May/June 2006 correction. In India, we have seen weakness in the equity markets since last week, and now the rupee is starting to weaken as well. Even gold - the “safe haven” - dropped 4% yesterday, so investors must be getting worried.

This might be one of those times when cash is king - especially when Indian banks are offering attractive interest rates on FDs, amidst a liquidity crunch.

PS: Related posts from Ajay Shah & the Indian Economy blog.

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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.