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Investing in times of scam

Around 170 BSE 500 companies saw their share prices fall by over 20% during Diwali, showing the quantum of impact that the series of unearthing of scams had on the overall market sentiment. Does it mean that you should go and buy the ones that are available at significant discounts? No, say market experts. Sandeep Singh reports. Fishing for opportunities in crisis

business Updated: Dec 11, 2010 01:20 IST
Sandeep Singh

Diwali seems to be over for the markets, thanks to scams and corporate governance issues. Around 170 BSE 500 companies saw their share prices fall by over 20% during the period, showing the quantum of impact that the series of unearthing of scams had on the overall market sentiment.

Does it mean that you should go and buy the ones that are available at significant discounts? No, say market experts.

"In these times when there are lot of corporate governance issues coming up, investors should be very careful with stock picks especially in the mid-cap and small-cap space," said Aseem Dhru, CEO, HDFC Securities.

However there are also some good opportunities in the market.

"Amidst the confusion good companies have also been punished, there are some good stocks available at attractive valuations that investors can get into," said CJ George, managing director, Geojit BNP Paribas Financial Services.

"It should be a stock-specific approach rather than sector specific," said S Naren, CIO equities at ICICI Prudential AMC.

If the Sensex fell by 7 per cent over the last one-month, the BSE mid-cap and small cap index fell by 15% and 19% respectively.

"Corporate governance issues are better in large-cap companies and when such issues come up then there is a flight towards quality, which is what has happened," said Manish Sonthalia, fund manager at Motilal Oswal AMC.

However, experts feel that investors can also look for some good companies in the mid-cap space as they are offering relatively better opportunity but not without proper evaluation of the company, its management and promoters.

Real Estate companies have been the biggest losers over past one month as the BSE realty index fell by 27% since November 5 and stocks such as DB Realty and Ackruti City fell by 51% and 47% respectively in the same period.

While domestic fund managers are advising caution on real estate companies and are reducing their exposures, foreign institutional investors have also been selling their stakes in the sector.

"There are corporate governance issues and the sector is still in an unorganised state but I do not think it is untouchable. There are some credible names in the industry that investors can look at," said Manish Sonthalia, fund manager at Motilal Oswal AMC.

Industry insiders however strongly say that investors should punish the companies and their promoters that have been involved in manipulation.

"Investors should not invest into those companies and be the first ones to punish even before the regulator does," said George, who feels that the market intermediaries should play a responsible role at these times by guiding the investors in the right direction into good companies.

Fishing for opportunities in crisis