Climbing walls of worry
As traders flock back to chase stocks and bears cover up their shorts, sharp rallies are the order of the day, writes Udayan Mukherjee.india Updated: Apr 22, 2007 17:20 IST
The buzz is getting louder. What started as a tentative pullback last fortnight is beginning to assume some serious momentum. So much so that people are asking whether the Sensex too will follow its global peers in cruising to new all-time highs. After all, it isn't too far away : 1000 points on the Sensex and about 250 on the Nifty.
Not much at all for a market which has been compressed under macro fears for many months and where participants have been absent or short. Now, as traders flock back to chase stocks and bears cover up their shorts, sharp rallies are the order of the day.
So, is it time to buy or sell? As this rally has proved yet again, it is impossible to predict short-term market moves. Investors basing all investment decisions on a uni-dimensional market call are likely to miss out. For most of last year, the Sensex was a mirage. Its strength never translated to portfolio gains for most investors.
This time, too, the fall may have thrown up some sector and stock-specific opportunities, which Sensex worshippers missed. But that is history. Going forward, my guess is that investors would do well to use rallies to get out of stocks with shaky fundamentals and use sharp corrective dips to accumulate stocks with solid growth prospects.
The environment necessitates active portfolio management. Just buying and holding any stock may not yield results.
Finally, the bears will wonder what has changed so suddenly. Not much fundamentally. Sure, the uncertainty in technology is much lower. Stock prices in some beaten-down sectors may have factored in a lot of the bad news.
While these sectors may bounce, new highs can hardly be justified in them as fundamentals have not yet reversed for the better. At some point, as stock prices and valuations move up, these demons will surface again. For now, the mauled bull is on the charge . The bear will need the help of the RBI or global market weakness to get back into the game again.