Has the stock market bottomed out?

The global turmoil has pushed Indian stock indices to levels unthinkable. Is there more pain ahead or is it time to buy? Three experts weigh in
International credit markets are in a crisis and the stock markets have been shaky. Nobody is in a position to react to the big macro issues such as where the dollar is going, what is the likely GDP growth of US or China, and so on. For every smart person on one side of the question, there is another smart person on the other side. The Indian financial markets have also been witnessing sustained volatility and clearly global cues are the deciding factor, in the absence of any strong domestic positive news. The US economy and its future course will be a critical factor in assessing the FII mood and market sentiments, going ahead. As far as the valuations are concerned although the Indian markets are now trading at 14-15x FY09E, and a large part of the froth generated is now out of the system, the sustainability of any upward move in the market clearly depends on global factors.

Analysts feel that the markets are trading closer to fair fundamental value but a minor down-move is not ruled out in the short term. One key deciding factor for the Indian markets will be FII liquidity, which seems to have completely dried up and unless this revives substantially way, we may continue to see volatile and choppy markets for another 3-4 months, followed by a noticeable recovery that could start from September ’08 onwards. However, even this will be subject to the forthcoming general elections, which now look scheduled early. As mentioned earlier, the full effects of a global meltdown are not yet fully factored in by the markets. Any fresh adverse news on subprime crisis, and slower US economic growth will continue to have a negative impact and will be a cause of concern for emerging markets like India, where one could see redemption pressure from FIIs to fund their subprime losses in other markets. Clearly, retail investors should look at the SIPs (systematic investment plans) of mutual funds as the right investment option if they do not have the ability and the capacity to take risk directly. Equity as an asset class will definitely bounce back and offer significantly better returns over the next two-to-three year horizon. With elections looming near the corner, the markets will continue to remain choppy and volatile and this may keep investors away from the markets. Nevertheless, this is an excellent time for an investor to build a quality portfolio of stocks because prices of almost all blue chip stocks have come off by almost 50% and hence returns from these levels over the next two to three years will be a significant for any retail investors. However, they will have to be patient and have the conviction in their investment decisions and take a long-term call on the markets without looking at the short-term aspects. It should be very clearly understood that the India story continues to remain strong but sentiment has taken a beating due to unfavourable global developments. Retail investors should never try and time the market; they should be in the market for a time. Other than equity, traditionally, retail investors have been investing in instruments like National Savings Certificates (NSCs), RBI bonds, post office, etc., and all these investments are for five years or more. However, unfortunately, while investing in equity, retail investors tend to take a short-term view and look for almost instant gains. This short-term approach needs to be curbed and equity, as an asset class, needs to be considered by the investors for long-term deployment. If this approach to investment is followed, the current market scenario is ripe for retail investors to enter for making substantial long-term gains.