Personal Finance: Investment Update: Go For Equity

PERSONAL FINANCE
Investment Updated: Go For Equity

The war's on as this is being written and fears of Anthrax loom large, but the equity market never looked as attractive.

By Shilpa Nayak

The markets are living up to their reputation of being unpredictable. Since the September 11 attacks, market movers have displayed nervousness over the imminent launch of an offensive by the US and the possibility of further terrorist attacks against that country. And what did the markets do when these happened?

Stockmarkets across the world rallied to pre-September 11 levels. The Sensex turned up sharply from the low of 2,594 on September 21 to touch 3,050 by October 17. Then it did a flip-flop on October 19 before settling at above 3,000 level at the time this article went to press. This rally was broad based with all segments of the market participating, but it was most pronounced in the sector expected to be the weakest due to its close links to the US economy, tech.

IN DEBT WE TRUST

The domestic debt market opened weak because of America's retaliatory strikes. The rupee fell to 48.20, and bond prices took a predictable dive. But they recovered smartly; the 10-year benchmark yields touched 9.25 per cent, and then closed at 9.14 per cent. The rupee was quoting at 48.03 when we went to press, on the back of steady inflows from exporters and foreign funds. Bond prices did fall on the expectation that liquidity would dry up due to the RBI auction of government paper on October 15, but recovered after sizeable auction-subscriptions. This has impacted the call money market; some call rates have tended to be higher; and banks seem to be waiting for a CRR cut in the credit policy. That might have happened by the time you read this magazine, but remember, debt is for the squeamish this month.

The reason for the tech turnaround could be the growing realisation that most tech stocks are closer to their real valuations. Infosys, at sub-3,000, for instance, has been quoting at a price-earnings multiple of between 25 and 30 since September 11. And if the markets needed more than just a valuation-motive to rally, then the two tech majors Infosys and Wipro provided that with their sterling second quarter results. And many tech stocks on the NASDAQ have held on or rallied despite disappointing news.

That means you should perhaps go out and buy some tech stocks. For, if the markets have realised that these are available at reasonable valuations now, the only way they can move is upwards.

The Indian pharma sector looks good too: the Anthrax scare has driven the demand for Cipro manifold, as paranoid Americans stock up on the drug. Offers by Indian companies to make up for the shortfall in supply has driven their stocks up. But, only Bayer has the patent to sell the drug in the US, and despite that widely reported call to Ranbaxy's US office from a Senator, it is not yet clear whether the US will take up an offer that could affect the country's position on pharma patents. Our recommendation: buy, buy, buy, and don't be put off by the temporary dip.

From an investment perspective there are several 'domestic-reasons' for looking at equities: demand for cement is up, the government's divestment drive has just had its best month in a long time, and the Indian economy has once again proved that it is largely insular in nature.

So, go and have a day out at the markets but remember that for the rest of the year, the bears will never be far away.

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