Newspapers are abuzz with announcement of Bargain Sales. Hoardings around the city greet you with amazing offers. It appears that the entire nation has been gripped with the 'Sale Mania'. Very soon Dalal Street will also join the 'Great Indian Equity Market Sale'. The dark clouds on the horizon are a precursor to a Tsunami hitting the Stock market soon: Another interest rate hike in India is imminent soon, The Govt. is heading for a final showdown with the opposition. In other parts of the world the financial crisis is likely to take a heavy toll. Historically too, August-September have been lean periods for the stock markets world over. All these factors are a pointer towards the 'Great Indian Equity Market Sale' opening up soon. Mind you once that happens everybody would be telling the investors to quit, as if the world is going to end soon. Smart investors are advised to ignore the doomsayers advise and indulge in 'Bargain Hunting' at that time.
I am expecting our markets to stabilise and consolidate in the range 4750-4950 on the Nifty, corresponding to 15800-16400 on the Sensex. Smart investors are advised to pick their bargains during this period, any fall below these levels should be considered as a bonus. We should approach the markets just like we approach a Sale. First, we must convince ourselves about the genuineness of the sale price, scrips that have been artificially boosted before declining should be avoided. Secondly, investors should focus on 'Quality', some quality stocks are also available at reduced prices during the Sale. Thirdly, stocks should not be bought at one go, one must keep on adding small lots on every decline, remember the prices are continuously slashed towards the end of the clearance sale. The trapped operators in stock markets offer stocks in 'distress sale' due to liquidity crunch and margin calls. That is the time to make a killing.
From the fundamental perspective, the risk-reward ratio would turn extremely attractive at the above indicated levels, when our markets would be available at 13-14 times forward earnings, after factoring in the slowdown in the earning potential of the companies. Entry at these levels would ensure that the investors earn a decent return of 15-20% CAGR and above for the next 2 years. However, the chances of the markets going down further up to the levels of 4300-4500 on the Nifty are a distinct possibility in case of a bigger global turmoil. But investors should bear in mind that it is virtually impossible to catch the markets close to the bottom, because the recovery from the panic bottoms are equally fast. Please prepare yourself for the opportunities, as indicated above.
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