Bridging the confidence deficit.

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When indices fall, we commonly find ourselves wanting to buy attractively priced stocks and not finding enough money for doing that. Not having liquidity should not stop one from buying blue chips which we believe are attractively priced. The answer to this problem lies within each investor’s existing portfolio. What we already own would have investments which may not perform in the near term. Identifying non performers and liquidating them is a sure source of additional capital. In taking this step, we often face the prospect of booking a loss. This should not deter us from taking decisive steps towards making the portfolio deliver over the long term. The pain suffered in the short term will not matter over the long term. Another interesting way of finding capital within one’s portfolio is to identify investments which are overvalued and switching from them into undervalued blue chips. When capital runs scarce, the option of making available capital productive must be exercised. When markets recover, we would ensure that we own the leaders of the rally.


The markets are clearly reeling under a confidence deficit. When confidence in an asset class drops, its return is likely to be long drawn and protracted. As the markets test a level of 5000 again on the Nifty, an interesting signal is emerging on the Indian Indices. A new leadership is clearly in the making for the Indian stock markets. This leadership change is to be viewed at two levels – At the company level and at the group level. TCS and the Tata group are set to lead the markets in the near term. Better business visibility and strong sustainability of growth seem to have made TCS a must-own stock among funds. For a very long time, other stocks enjoyed that must-own status. With the economy struggling to retain its current growth rate of 6.9%, there would be a further shift in market leadership. The fall in the market capitalization of Reliance, and the relatively stable stock performance shown by the stocks of ITC, ONGC and Coal India are interesting developments. How the top five stocks line up in the coming months will influence the market’s stability. The government’s moves on oil prices and the volume of coal shipped by coal India in the first quarter need to be watched closely. Meanwhile, ITC seems well set to gain prominence in the Sensex. Some good should emerge from the churn in leadership and this will bridge the confidence deficit over time.

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