As a result, profit-booking has become an order of the day and every time the markets rise, people are rushing to minimise their losses. Interestingly, there is not much difference between the strategies adopted by different investors even though many stocks are trading close to their 52-week lows.
While the word volatility has become an accepted phenomenon and is always associated with equity markets, the prolonged volatility seen for the last couple of months has become a worrying factor. In the current market scenario, traders seem to be too happy to react to bad news more than to good news, and unfortunately, there hasn't been any problem on the supply side of bad news. Inflation has been heading the list of bad news and the intermittent good news from international markets has been swept aside by market participants. In this background, the coming results season holds centre stage.
An important feature of the current season is that it is one of the best quarters for corporate India though this quarter may not bring in much cheer. Traditionally, the fourth quarter is always the best performing quarter for most companies but the rising commodity prices and higher interest rates hasn't made life easy for corporate India. In fact, technology is one of the few sectors which looks promising as the rupee has slowed down its appreciation march. From an investor's point of view, the sector is increasingly getting relevant.
Many stocks have been beaten black and blue over the last few weeks which has made them look more attractive. Some of the IT bell-weather stocks now look like attractive buys in the current market after shedding more than 50 percent in less than one year.
Another sector, worth watching is energy. Again beaten out of shape in the last few months, the sector promises a good show due to its long-term potential. However, investors need to be choosy with their companies.
Some of the public sector stocks look attractive with a medium-term perspective. While choosing the sectors or stocks, investors have to remember the fact that the next few months are a testing period for the equity markets across the globe and it would be prudent to use the period for accumulation rather than for short-term gains.
Since the Finance Minister has also increased the tax on short-term gains, it makes sense to think long-term. However, the optimism for market revival is not completely out of place. In January 2008, the market was trading around 21.5 times one-year forward PE. Today, it has slipped to around 15 times.
So it is the risk appetite of investors, particularly that of institutional investors, that has taken a toll on this market. The current PE has to be viewed n the backdrop of an 18-20 percent earnings growth which seems highly sustainable for the next 1-2 quarters. The coming results season could be an indicator of things to come