The introduction of buyback will not necessarily result in a sustainable rally, feels Rajesh Jain, executive director, Pranav Securities. In an interview with Santosh Nair, he said that the time was ripe for the long-term investor to buy shares of well-managed commodity companies which are currently hit by recession.
How do you see the bourses reacting to the buyback announcement?
The indices may see a temporary spurt of 100-150 points, which will be partly speculative and partly valuation driven.
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The key factors to watch out are as to how the scheme is going to be governed, the time-frame within which it will be implemented, the type of companies which will opt for buyback and the motive of the management behind the move.
At the moment, there is a general feeling that certain managements might join hands with speculators to prop up their share prices via the buyback route.
However, unless other critical issues facing the market are tackled immediately, the rally triggered will be unsustainable.
What are the factors that continue to cap the uptrend in sentiment?
Following the US-64 imbroglio, there is lot of apprehension among players as to how effectively the financial institutions (FIs) will be able to lend support in the coming days. FIs are still downloading a large chunk of their holdings. The other crucial factor is economic growth. Since the start of this fiscal, indications have been mixed; in some months there has been good growth and in some others, a slowdown.
Since a couple of months, the capital goods sector has shown negative growth. Excessive rains this year is bound to exert pressure on agricultural output.
The other cause of concern is the consumer durables sector, which seems to be showing signs of slackening. In this context, the third-quarter results of Hindustan Lever will have a significant impact on the sentiment.
Where do you see the bourses heading?
The 2713 level will be very crucial for the Sensex. In December 1996, the index had staged a strong rally after testing this level. Since 1994, it has tested the 2700 mark and crossed the 4000 levels on four occasions each. I feel that history might repeat itself and the Sensex will rebound from 2700.
But, in the light of the negative news from various fronts, it looks unlikely that the rally will last beyond 3000.
From a long-term perspective, what strategy should a small investor adopt?
Retail investors could do well to pick up public offerings of the PSU Navaratnas, when the divestment programme comes through. These stocks are currently available at attractive valuations and will provide excellent returns in the next few years.
Also, one should have a look at some of the commodity stocks that are going through a downturn.