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Don’t nest all your eggs in cheap market

business Updated: Jul 13, 2008 22:01 IST
Vyas Mohan
Vyas Mohan
Hindustan Times
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With analysts predicting that the equity markets could hit the bottom any day, the time seems to be ripe for investors to do some value buying.

However, with the global economy still wading through unclear waters, the ideal investment theme should be sticking to companies that are least-affected by a global slowdown.

“Telecom is one such sector where the growth story is intact. Fast moving consumer goods (FMCG) and capital goods also look good, as a major part of the businesses is driven by domestic consumption,” says Mahesh Bhagwat, head of equities of Mape Admisi Securities.

Though a 40 per cent fall in benchmark equity indices from their all-time highs that ensued a shaky global economic scenario has seen analysts predicting a market bottom close by, it may not be wise to nest all your eggs at one go.

According to the Fibonnacci school of thought in technical analysis, the markets could settle down at 50 per cent retracement levels. This means that the likelihood that an asset’s price will retrace a certain portion of its original direction, which is upward in this case, is more.

“The Nifty could test 3,500-levels. We have historically seen markets find rock bottom at 50 per cent retracement levels. Investors could use 25 per cent of their funds to buy quality stocks at current levels and also look to buy more at lower levels,” said Vijay L Bhambwani, CEO of BSPLindia.com.

The big fall since January 2008 has seen once-fancied stocks turn dirt-cheap. “Stocks of private sector banks and oil exploration companies look good at these levels,” said Bhambwani.

While the BSE Realty index is trading 37 per cent lower from year-ago levels urging companies in the pack to go for share buybacks, the BSE Bankex has fallen 25 per cent in the same period.

Chartists have said that the fifth wave or the final leg of the bull-run (according to Elliott Wave Theory – another method of technical analysis) that started from 10,500-levels on the Sensex in July 2006 ended on June 8, 2008, with the Sensex recording an all-time high close of 20,873.33 points.

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