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R.Y. Narayanan

"Retail investors should not look for timing the market while taking investment decisions since the market could move in either direction too fast due to reasons beyond the control of the ordinary investors."

THE continued uptrend in the domestic stock markets for the past few weeks has raised a familiar question as to whether the rally would last long or whether it is only a false dawn.

This is understandable because of the continued downturn in the US economy and the choppy movement of the Dow Jones and the Nasdaq, which still influence the sentiments in the markets world over.

Moreover, the domestic capital market has been in the grip of the bears for nearly two years and a sustained rally seems to elude the market, though it has shaken off the tremors set off by the 9/11 terrorist attack in the US.

But if one has the patience to remain invested in the market and is choosy in picking stocks and does not allow oneself to be swayed by the market gyrations on a daily basis, the capital market continues to provide a reasonably good return for any retail investor.

Indian companies, by and large, are dependent on the Indian consumers and the impact of any global slowdown on their fortunes is relatively less except on sectors like software that are dependent on exports. It is Indian conditions like good monsoon or the political sparring even on disinvestments, which have an influence on the market behaviour than what may happen abroad.

It is to be understood by the investors that years of investments made by companies in building assets, brand image, product innovation and development etc would not disappear just like that even if there are temporary setbacks that impact their share prices momentarily. In fact, an astute investor looks for such opportunities to pick stocks of high value at a reasonable price and see his asset value multiply over a period of time.

One can cite several stocks that took a beating in the past decade or so when controversies surrounded them for variety of reasons, including market heavyweights like Reliance, ITC, Dr Reddy's, HDFC etc. But look at the way these stocks have bounced back and have provided steadfast returns that could not be dreamt of in any other investment option.

Speaking to Business Line, Mr K. Annamalai, former President, Coimbatore Stock Exchange (CSX), said that retail investors should not look for timing the market while taking investment decisions since the market could move in either direction too fast due to reasons beyond the control of the ordinary investors.

He said investors in stock markets could expect a reasonable return of around 15-20 per cent per year if they invested in quality stocks and held on to their investments without being influenced by movement of the market due to technical factors.

Citing instances of several blue-chip stocks that have witnessed substantial increase in value in the past three months, he said SBI, which was hovering around Rs 210 in early October this year, had moved up to Rs 270 now and Digital Global had moved up from Rs 490 levels to Rs 610 level during this period.

A whole lot of shares like Tata Engineering, Tata Steel and L&T, which were under pressure some months ago, have bounced back now, providing a healthy appreciation in value. It is advisable for investors to look for stocks that have low P/E ratio, have good dividend record and reasonable long-term growth prospects and have top quality management.

The case of the two PSU oil majors - HPCL and BPCL - is an example of how factors other than the fundamentals of the companies have influenced movement in these stocks. After the three-month cooling off period on their disinvestment announced in September, these stocks witnessed a substantial erosion in value - from around Rs 250 levels to a low of about Rs 175. But now HPCL, which has pipped BPCL to the disinvestment post, has moved up to Rs 280 levels whereas BPCL is quoting in the Rs 210 range. But even without the disinvestment trigger, these shares are a safe investment bet because of their high earnings and dividend payout apart from good management.

The passing of the Securitisation Bill has acted as an elixir to the banking counters and most of the frontline counters and even smaller bank stocks have moved up by 15-25 per cent in a short span and could offer a stable investment opportunity.

Some of the other frontline stocks such as Reliance and Dr Reddy's, which were battered some weeks ago, have netted handsome gains. The two software majors, Infosys and Wipro, have moved up by around 25-30 per cent in the last three months.

Mr Annamalai said retail investors should adopt certain cardinal principles while investing in the stock market — enter it while market is in a downtrend or correction, select stocks that are market leaders in their respective business segments and hold on to their shares for a year or more.

He said in the successive market scams of 1992, 1994 and 2000, people who entered the market during the boom period burnt their fingers badly and left with shares of dubious value that had plummeted price. But fundamentally strong companies, irrespective of market gyrations, have continued to deliver returns to their investors.

He conceded that this was proving to be a difficult task since investors tended to buy when the market was high and panic when the market was low and try to exit.

But if a combined effort was made by the stock exchange authorities, market regulators, the stock brokers and the media itself to educate the masses about the true potential of the stock market to add value to investors, then probably a change in investment mindset may occur that would augur well for all concerned.

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