Predicting the index is a dangerous business. Trying to do it within a time frame is double trouble. In times like these when investors lose faith in the system, predicting can be far more riskier than investing. Investing now is a lot simpler as valuations have got lower and earnings are set to rise. Buffet had this to say on predicting the market – ‘We do not have, never have had, and never will have an opinion about where the stock market, interest rates or business activity will be a year from now’. Yet, equity aversion shows no sign of going down. If we want to invest like Buffett, we should be keeping ourselves focused on valuations rather than on sentiment. Building conviction will be far more rewarding than making predictions. The valuations are getting closer to a point where they make a compelling case.
Nothing went right this week for the stock investor. The data was weak. The political pronouncements on GAAR did not impress the foreign investors. The lowering of guidance by Cognizant made investors wary about the listed Indian leaders like TCS, WIPRO & INFOSYS. Technology stocks suddenly did not seem like a safe haven. The markets seem to be reacting to bad news and overlooking any news that is remotely good. Liquidity was a primary driver of markets in the first quarter of the financial year. The sustenance of liquidity as a market driver looks weak and suspect in the second quarter. When liquidity flows go against the market, the likelihood of valuations turning extremely irrational becomes stronger. The coming weeks will test the market’s ability to fight irrationality.