If you thought stock markets are only about bulls and bears, well you obviously haven't recognised the rest of the pack on the equity farm: The chickens and the pigs, who typically crawl out of the nooks on The Street when the benchmark indices start heading downward. Chickens, as the name suggests, are those who, fearing a crash, decide it's best to bail out of the market lock, stock and feathers rather than lose it all. The poor pigs, though, are the worst of the lot: They're the high risk takers, who see an upturn when there's none, and start buying big time on the basis of careless Chinese whispers and without an iota of research. In other words, they're greedy, impatient. And doomed.

With the Sensex losing over 800 points from its March 9 peak of 6,955, the advice from market experts is clear-cut. One, don't be a chicken and exit. "The India growth story is still intact in the long term," points out Nischal Maheswari, Head of Private Clients at Edelweiss Capital, a Mumbai brokerage. Two, don't be a pig and think the rough times are over. "We are in a cyclical downtrend," shrugs Jamshed Desai, Head of Research at il&fs Investsmart India. Translation: The falls we're seeing now are not just monthly blips (that is, the correction that happens within the monthly futures and options cycle), but are medium term in nature, which can last up to four-to-six months.

Clearly, in between the chicken and the pig, there's definitely room on the farm for more sensible beasts-those who will see out the current volatile times, and wait for the good times to roll once again. To be sure, there are several reasons to believe that the good times are just a few fox trots away. For one, the report cards being put out by the corporate sector continue to impress. At the time of writing, for the sample of 578 companies that had declared results, revenues had moved up by 19 per cent, operating profits by 21 per cent, and net profits by 33 per cent over the previous year's corresponding quarter. "By and large, results are on the expected lines," says Abhay Aima, Country Head (Equities & Private Banking Group), HDFC Bank.

PSST, THERE'S VALUE HERE The recent fall in share values provides potential for long-term appreciation in several sectors. Here are four of them:

OIL: Extremely volatile international oil prices are leaving their mark on stocks in this sector. But keep in mind that because of price control, the volatile oil prices will affect the companies differently in India. For example, oil producers (like ONGC) will benefit from the price rise, while the marketing companies (HPCL, BPCL) will lose in the short term (till the government allows a price increase). So use this period to buy into these stocks cheaply. BANKS: It is the first sector that will get beaten when the liquidity crunch affects the markets and therefore, don't be surprised if this sector remains extremely volatile in the coming months. That will generate enough buying opportunity in very strong banks like HDFC Bank, SBI, etc. ENGINEERING: It is the biggest beneficiary of the revival of capex cycle in India and the ones with heavy order book positions are expected to post good results for several more years to come. CEMENT: It will also benefit from the construction boom that is happening now (residential, commercial, infrastructure, industrial, etc.). The demand-supply situation is also stabilising here, meaning more price stability for the cement companies.

Another sliver of good tidings for fiscal 2005-06 is in the guise of a normal monsoon that's been predicted by the Met department, which should play its part in the economy growing in the 7 per cent range. The Reserve Bank of India has put out a growth projection of 6.9 per cent for the current year, whist the NCAER is a tad more bullish, with an estimate of 7.2 per cent. With inflation in the 5.5-6 per cent range, nominal growth should be in the 12-13 per cent band. This, in turn, means that big corporations should continue to show healthy top and bottom lines in coming quarters. "In 2005-06, corporate earnings should grow by 15-20 per cent," says Aima.

The recently announced credit policy too, in the meantime, has done its bit to keep the growth engine going. Steps like the doubling of overseas investment limit for companies, allowing all corporates (not just importers and exporters) to hedge their exposure to commodities in the global markets, allowing listed corporates directly into the repo market, and treating importers at par with exporters (they can also cancel and re-book their forex positions) are all positive steps that will benefit India Inc. in the long term.

Unsurprisingly then, marketmen aren't flinching with their bullish projections. "The broad rally should take the market to around 7,200 by March 2006," says Aima. "It should reach 7,200 by October-November this year," says an even more gung-ho Devesh Kumar, Senior Vice President and Head of Equities at ICICI Securities.

Great, but just in case you forgot, there's a longish see-saw of volatility you've got to ride out in the short- to medium-term. One big dampener, at a global level, is the reduction in global liquidity. With us interest rates moving up (the us Fed is increasing rates in a measured manner, at 25 basis points every 45 days), money is slowly flowing back to us treasuries, mopping up global liquidity. Compounding the problem is the revival in capital expenditure domestically, which is resulting in more demand for the moolah. "Liquidity (both domestic and global) is drying up fast. In fact domestic liquidity has already reached a 19-year low," bemoans Ridham Desai, Head of Research, J.M. Morgan Stanley.

High commodity prices are the other spokes in the growth wheel. Although companies making these commodities are beneficiaries, the user industries are creaking under mounting costs. "Corporate growth rates are tapering off because these costs are moving up," says Desai of IL&Fs Investsmart. The high international oil prices (above $50 or Rs 2,200 a barrel for some time now) is the biggest worry for the global economy. Any major spike on that front will immediately reflect on the equity market as well.

"The Indian market is overvalued by 17 per cent compared to emerging markets and a higher 30 per cent against global ones" Ridham Desai Head of Research/ J.M. Morgan Stanley

The Indian markets may not be in the overvalued zone, but these days you no longer will hear punters muttering that "stocks are grossly undervalued". "Not very cheap, but fairly valued-just 13 times based on 2005-06 earnings," is how broker Motilal Oswal puts it. "Sensex valuations are quite reasonable at our 2006 estimate for the Sensex EPS of Rs 574," adds Nandan Chakraborty, Head of Research, Enam Securities. However, comparisons with emerging and global markets don't quite paint such a pretty picture. As J.M. Morgan Stanley's Desai points out: "As per our estimate, the Indian market is overvalued by 17 per cent compared to global emerging markets. The overvaluation is much more (30 per cent) if one compares with the global markets."

So how should you be reacting to this rather mixed scenario? Well, the good news, of course, is that The Great Indian Story is intact, and you could increase your exposure at every correction (not mindlessly like the pig, though). Don't wait for the eventual bottom-even Einstein wouldn't be able to predict it. And look out for triggers; one could be just round the corner.

"With the budget session getting over, you can expect more aggressive action from the government on economic issues," says ICICI Securities' Kumar. "The trigger can come in the month of July in the form of first quarter results, or from companies announcing plans for the future in their AGMs (annual general meetings)," adds D.D. Sharma, Vice President (Research) at Anand Rathi Securities. Most important, though, is to rein in those expectations. Be happy with around 20 per cent. Don't be a pig and expect a lot more. Unless, of course, you are in the mood to get slaughtered.