by Vivek Karwa, CPFA., CFPCM
141219 – Sensex closing on 31.12.2013 was at 21171, the recent high on 28.11.2014 was 28822 (36.14%), we this week corrected till 26469 on 17.12.2014 (correction of 8.16% from the highs) and has now started recovering again.
If you recollect in early 2014, when the index was hardly at 16500, the targets given on Sensex was a range of 28630 – 30006, we correctly breached the lower end and saw a correction. Hence the valuations seem to have reached temporary fair value and after this correction should try to test the upper target of 30006 of the range as well.
The recent correction and the volatility was much needed one. One should believe that our market is in a marathon race and in such a race you cannot be running without breathing. Our markets ran sharply within 12 months and a breather was required. Such sharp corrections bring back to earth the investors and analysts who were flying high. In a bull market even a school going kid starts thinking he has great capabilities of picking stocks.
One correction and the reality stares in their eyes and these people tend to visit the much needed fundamentals again. One should keep in mind, when the indexes sour even penny caps fly along. In a bull run no one has time to check what the company is into or is it a profitable company. They just place buy bets and the extra smart people tend to book profits at cost of foolish investors.
Breaching the upper range and trading above that firmly, would require the fundamental backing from the economy. The economy, as per most of the researches houses, is back on track and will start chugging ahead in 2016-2017. The actions of the new government will start showing results only in 2016 onwards.
Even the RBI chief has become less sceptical now and expects inflation to stabilize here so that a rate cut can happen. The recent numbers of 0% inflation will go well with most of the economists. A rate cut in our country, at a time when many others are looking to rate hike will lead to short term confusion among investors but will end up attracting more foreign funds in the longer term.
Hence, for the investors in FDs, it is time to look away from the Fixed Deposits and time to start looking at Debt funds. Debt funds are not as risky as equities and investing during a rate cut cycle may give you few percentage points over and above the FDs. In fact, hopes of rate cuts have already reduced the yields and investors have pocketed some capital gains already.
Volatility may continue, volatility due to global factors may be higher in the medium term, every volatility should be looked as a chance for long term. Banking sector looks good, there is lot of noise over NPAs and these noises will help reduce the future NPAs. Avoid aviation sector and real estate sector for some more time to come.
Whole market is now waiting for the budget. First full budget of the new government. Hope it doesn’t turn out to be a disappointment.
This Article will be Printed in the Investors Digest Magazine of TamilNadu Investors Association (SEBI Recognized)
Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.
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