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It still pays to stay invested

The new milestone vis-a-vis BSE Sensex could not have come at a better time, reports BS Srinivasalu Reddy.
Hindustan Times | By BS Srinivasalu Reddy
UPDATED ON JUL 06, 2007 10:18 PM IST

It may have taken 146 trading sessions for the BSE Sensex to move from 14,000 points to 15,000. But the new milestone could not have come at a better time to reinforce the confidence of equity investors in India.

In just seven months since December 5, 2006, when the Sensex first hit 14,000 points, investors have reaped a return of 18.31 per cent. Doomsayers have been silenced.

The big boys will be the biggest beneficiaries. Foreign institutional investors and their associates, which have bet on the India growth story, are still bullish on the Indian market, pumping in over Rs 1,400 crore during the month so far.

However, unlike the past, this rally is different. During the last 1,000 point run of the Sensex, small and medium enterprises had climbed at double the pace of the benchmark Sensex.

This time around, the market has been basically pushed by the top three Sensex majors—Bharti Airtel, Reliance Industries and Larsen & Toubro. Fears of a reversal cannot be fully ruled out. But inflation seems to have moderated for now, sending positive signals on the interest rate front.

For the time being, the Reserve Bank of India may not resort to more interest rate hikes, given the low level of inflation. This provides a conducive environment for continued bullish sentiment in the market.

We are not far away from the results season. In a few days, market pivots like Infosys will be declaring their results, which may make or break the expectations built over the performance of information technology companies.

Despite fears to the contrary, the market is expecting a 17-20 per cent growth in quarterly results, on the whole. The fears of a slowdown in the US and the global economy apart, market experts predict at least a 10 per cent rise in the Sensex before the year-end.

That will be a whipping 30 per cent-plus return on investments in equities. The rally provides an opportunity to exit stretched stocks in your portfolio. Overall, though, it would still pay to stay invested.

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