Monday, February 06, 2006

Sensex hitting 10K - should we be happy?

Sensex hit 10K today - the magic number that seems to be on all financial information channels in India. There is only one word to describe the various financial companies (stock brokers, investment firms, the friendly neighborhood advisor etc., etc.) - Euphoric state of righteousness. Sounds strange? Let me explain - many a financial firm seems to think that 10K is a given and that we as a country rightfully deserve it. Exactly what does that mean? I ask them and the answer is always a macro economic in nature - country is going great guns - our growth in infrastructure is going to be fantastic. We will beat Economy X or Economy Y within a few years etc.,

I am not able to share this conviction with the professionals. As a retail investor I am not comfortable with our growth story for various reasons. Maybe they are right and maybe I am naive - let me explain my stand on this based on what I have learnt by burning my fingers many a time on markets due to my naivete. One of the realities of today's financial markets around the world is this - no country is an island. A change in Japanese foreign policy will have an effect on US markets and similarly a floods in South America will affect coffee prices throughout the world. So let us for a minute look at the events world over -

  1. Oil prices have been on the raise we seem to be at $65 / barrel - there is no way it is going back to the $40 / barrel prices in near future unless there is a major collapse in a major oil consuming economy like the US

  2. We will have a stable government for the next few years - there is already rumblings in the government with the left and their constant bickering about various financial changes that the government today is bringing about does have its fair share of opposition

  3. There seems to be no bad news worth stopping this market - We had one of the worst floods hit various parts of our country this year and when the entire city including where I live was floating on water, the market also kept floating without even a blink. A country where the agrarian economy still rules supreme, how can such news be discounted so easily?

I guess I can keep giving more broad market examples but I want to complete this post with a simple example that really scared me - I read this article on - They rank various equity funds on their annual performance. They rank 106 equity mutual funds and guess what was the return of the 106th fund? - well it was 26% for last financial year! Guess what folks - that sounds too good to be true.

Good luck to you - In my world today, cash is the king! Post your comments on what you think about the market and my thoughts

1 comment:

Anil Gupte's Video Blog said...

Yuo are right. I had my old father pull out of the market when it reached 8,000 and he is complaining about it. Still I think I am right, because the market will come down - only no one can time it and should not try.
Thae fact is, when you don't have fundamentals there is going to be a crash. And 26% is not growth - it is speculation. Companies cannot expand that fast.

BTW, can you give us the URL of that report for the 106 mutual funds.