ithought market wrap No. 41, 02 Aug 2011

Quick edit:

When Investors choose safety over risk, they buy capital protection products, gold, insurance and other options they believe will achieve capital protection. Investors need to evaluate the premium paid for buying safety. Gold Prices trades near its all time highs and most capital protection products have costly exit loads and fees. The price at which you buy safety itself becomes the risk. We believe that it makes better sense to reverse direction, step out and take some risks rather than buy safety. Equity valuations have been softening and the PE’s hover around 13-14 FY 13 earnings. Buying quality stocks at reasonable valuations seems sensible in the current circumstances. The option of buying more needs to be kept open and a gradual increase in exposure to equities will pay off over the next year or two.


A shortened trading week often leaves us surprised. The markets regain some balance during these phases and sanity returns. The week that passed was one such phase. FII’s who sold for days on end seem to have shown the first signals of contrarian buying. The markets will be closely watching if they will continue to buy or go back to their selling ways once markets recover a bit. The DII’s have been buying steadily and will probably continue to play a contrarian approach to what the FII’s do. The coming weeks will see inflation worries and interest rate hike concerns return to haunt stock prices. Global sentiment which was extremely weak a few weeks back seems to be improving and the coming weeks will show if the recovery in global stock prices is sustainable or short-lived. Indian investors will be keeping a close watch on global sentiment and a decisive trend will emerge only after these concerns are discounted by the markets.


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