Defense gets pricey.
The big boys of the 2008 stock boom are all trading at a fraction of their peak rates. Reliance, ADAG, DLF, BHEL, L&T & BHARTI AIRTEL have all shown little resilience and look a pale shadow of the market movers they once were. Yet, our indices are showing remarkable strength and seem to be steadily clawing back. This remarkable comeback is attributable to the new leadership emerging in the market. FMCG, HDFC, private banks and IT have seamlessly filled the void created by the fallen heroes of 2008. The emergence of a new market leadership is a clear sign of better times ahead.
The markets often humble investors for long years only to reward them in short bursts of time.
Defensive investing strategies always dominate when economies slow down. Capital tends to get concentrated as large investors seek to ensure they don’t lose money. This raises the valuations of defensive plays. The indices also gain strength through this concentration of investments. When the economy recovers in due course, other sectors see a performance rebound and quickly recover lost ground. The defensive plays stabilize at that level and the growth engines of the markets change. Every Bull Run broadly follows this pattern and the next one will be no different. For the moment, the market is buying defensives like FMCG, pharma and IT aggressively. The wait for the return of growth has just begun.
Think of a longer horizon. The short term troubles will blow over.