India's profile in the global arena has never been as positive as it is today. The Indian economy seems set on putting in a kind of sustained growth which it has never done before. If there is anything that beats all this then it is the confidence level of both India's corporate world and those who people it. Under these circumstances it is hardly surprising that the stock market is booming and touching historic highs. |
In many ways the present boom is more real, that is based on fundamentals and not the stuff that makes bubbles, than earlier booms. The typical rush of innocents in the late stage of a bull market is much more subdued this time around. All this can create the feeling that "we are OK, hope you too are". |
But numbers and recent experience do not indicate that those who haven't got in can safely do so now. In terms of indices, values have gone up by a massive 30 per cent in just four months. In the last one year values went up by 50 per cent. But when you take a longer period the picture changes. The indices went up by just 10 per cent more, that is by 60 per cent, in the last six years, that is since the tech bubble burst. |
Hence, most sensible opinion holds that if you have not already got in then don't do so now. At current levels valuations are stretched and you need a couple of good quarters of earnings to bring them back to more realistic levels. So be ready for some correction if not flat performance in the near term. If all this is true then the party is only for those who joined it much earlier. |
Then who are the ones who have made it to the party in good time? A lot of the current high valuations are restricted to large high-profile stocks and those who have solidly gained from their growth are large players. If we marry this with the point made earlier that the present bull run has not seen a rush of small investors as was the case with earlier bull runs, then it means that the party to celebrate the Sensex hitting 10,000 is really for the big boys. The laity is neither there, nor should it think of getting in right now. |
The obvious point that follows is: should the laity then wait and apply for new issues as and when they come? Thereby hangs a tale that all are aware of. If every large market rally has a scam in its bosom, then the present one's is obviously the scam involving multiple applications. In the last year or so, the more the market has risen and the more good issuers have come to it, the lower have been the chances of allotment for someone who has bunged in an application each for self and spouse. |
The multiple applications scam is in one way like many previous ones. Most experts know how it can be prevented. Get all investors to have a unique ID, get them to declare their PAN, ditto the details of their bank accounts, and once you have got these details, link them up for all investing relatives and associates. This is likely to put an end to the racket of multiple applications and improve the chances of the laity landing some good stocks. Perhaps that's the reason why the authorities have not enforced such a package. |
It is axiomatic that for a healthy and performing stock market you need very broadbased shareholding. Not only are there too few retail investors in India and the IPO door is virtually closed for them, the market continues to be driven by foreign institutional investors. Indian mutual funds have partially reduced the syndrome of everyone trying to second guess the FIIs but there is still a long way to go in this regard. |
One answer to all this is: who says the small guy has to burn his fingers in buying individual stocks; he should go in for mutual funds. But the issue is being able to select a few good schemes from any number of schemes of a plethora of funds. If you are good enough to select good schemes which do better than most, you can probably select a few good stocks and save the fees of fund managers. But the huge popularity of mutual funds right now (they always are during an extended bull run) indicates that most Indian retail investors have ceased to go into stocks directly. |
That would be a pity. Stocks directly acquired remain the best source of long-term value. Despite the volatility the Indian stock market has known, since 1991, when the Indian stock market really started perking up, the Sensex has recorded a compound annual growth of around 14.5 per cent. Now that does beat inflation comfortably. Conventional wisdom holds the following: pick a clutch of reputed brands and companies behind them which have been good to all for long, put your savings in them without trying to anticipate the peak or the trough, hold on to this for at least a few years and you will not lose. If that is true then you don't need to bother about a non-issue like the Sensex touching 10,000. |
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper