Investors in India had excellent returns of 40-50% over the past two years, but it is going to be very tough to make money in 2008. Valuations of many sectors are looking overstreched.
It is advisable to avoid fresh investments in Power (Most of the stocks are valued at their earnings multiples based on their anticipated performance in 2011 or 2012), Telecom (The spectrum crises may lead to higher costs for telecom operators, whreas the ARPU's are not increasing). Real Estate (highly oversteched valuations, unstainable in the long run. Perhaps a bubble waiting to burst!)
However selective investment may be considered in Banking (Public sector banks are still quoting at reasonable PE multiples), and Autos (the downcycle seems to be ending, and once the interest rates fall, they can give reasonable returns)
Midcaps: Many of them are being manipulated because of low floating stock, small investors need to be extra cautious while investing in midcaps.
Only excess liquidity is guiding the destiny of our markets, it is anybody's guess how long this scenario will last.
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