2008 – Party to continue or time to be cautious?

Last four years for the Indian equity markets have been unprecedented. Almost every segment of the economy has flourished and the future seems to be bright than ever. Investors, both short-term and long-term have made money and are expecting the last 4 years historic run to continue. So, at the moment, we have more buy reports then sell reports in the market. But, the experts differ and expect the future to be more volatile than ever as the Indian economy is getting integrated with the world majors. Experts believe that the days of easy money are over and going forward the probability of only the long-term investor making money seems to be higher.

So, what should be our strategy for 2008?We believe that 2008 is going to be a year of exit. We don’t recommend a mass exodus, but exit from investments where the euphoria has taken over the fundamentals (select small-caps), and price rise is beyond all reasonable valuations (power stocks), sanity should prevail. Investors invested in some of the above mentioned segments/sectors should plan an exit, with a very stock specific selective entry.

Always bear in mind that the downward journey is always more painful and faster than the upward journey. SEBI’s guidelines of regulating the foreign funds immediately put the market on a down circuit freeze. How many times have we seen the markets on an up circuit, whatever may be the frenzy?

Ben Graham’s “Security Analysis” starts with the following observation: “Many shall be restored that are now fallen and many shall fall that are now in honor.” We believe that many high-fliers with no fundamentals will witness significant erosion in the valuations, with upside limited to very few selective stocks.

Can 2008 belong to IT, Auto components and Textile, as these sectors in the quest for survival might come-up with the next revolution? We don’t have a black-magic stick with which we can predict the future with accuracy. With our limited knowledge base and intense discussions, in next few weeks and months we will try to share some of the ideas across markets caps, and sectors, which we believe should outperform the general indices, are create significant value for its investors.

At the cost of being repetitive, we urge the investors to be cautious and not play with their hard earned money.

Remember, Rome was not built in a day.


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