Contrarian views - Jan 25, 2004

The recent euphoria in the markets has been music to the ears of all and sundry. Heady talk of 7000, 7500, 8000 and even 9000 + levels of the Sensex are being touted by analysts. While that should please the investors and traders the most, we feel the extreme bullishness needs to be tampered with realism and practical reasoning. Will the markets really vault another 100 % from the 6000 levels ? The way they did from 2900 to 6000 in year 2003 ?

We beg to differ !

Though we are not bearish on the markets, we feel that the run upwards from the present levels will be a lot more calibrated and measured. We had given an example of how it is easy to climb up from ground level to the 5 th floor, then it gets increasingly difficult above the 10 th floor and after the 20 th floor, your lungs start gasping for oxygen and legs ache with fatigue. Markets will be the same. Sure, the undertone will remain firm and the outlook will be positive. But the retail investors intelligence quotient ( IQ ) should not be underestimated ! They remember only too well how the "penny stocks" jumped manifold on stratospheric volumes and they were left holding the babies. This time the polarisation is around quality stocks and not junk shares. Unlike the 1999 - 2000 bull run, every share that has "software" & "infotech", infront of it's name is not jumping up everyday. Or any hot sector for that matter. The rally is more broad-based and spread out. This kind of rally does not see one sided umoves as the heavy-weight counters need to let off steam and correct downwards - unlike small / mid caps.

Let us also connect to the reality of the domestic capital markets. There has been a total absence of public issues ( IPO's) and the line up of IPO's will see a shift of resources ( however limited ) from the near monopolistic secondary markets to the primary markets. Take for example the GAIL & ONGC issues - over Rs 10,000 crs !!! Then you have LNG Petronet and a slew of private companies, waiting to cash in on the good times. The recent gyrations of the markets ( loss of 10 % in as many days !! ) has only fortified our view that the market euphoria is somewhat brittle and needs to tone down a little. On the business front, let us not discount the firming Rupee which makes our exports dearer and software companies are facing the heat.

Your call of action - the sum and substance of this page is that the markets are bullish, but tread with caution. Stick to quality and create wealth, not quick profits via daily trading. We assure you dear investors, you never had it so good !! The good times are here for the savvy & patient investor.

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