Tuesday 14 October 2008

Frontline stocks likely to lead rally when market rebounds



The market may not be out of the woods yet, but going by anecdotal evidence, this may be a good time to start bottom fishing in frontline stocks. Reason: attractive valuations apart, there is too much pessimism among market participants. Brokers feel that when the recovery starts, it would be the frontline stocks leading the rally.

Though most foreign equity analysts view the recent rebound in equities as unstable recovery, a section of market watchers back home, feel Indian market is very near to bottoming out.

“It is possible that the market may have bottomed out,” said Karvy Stock Broking vice-president Ambareesh Baliga. According to Mr Baliga, the ‘pain’ (referring to the bearish phase) will last for a long time. Though valuations are compelling, most investors are not convinced that now is the time to start lapping up shares, he added.

“We’re advising investors to start buying once the market attains some stability, even if it means key stocks appreciating 10% from current levels. For sure, this is the time to buy large-cap stocks; the rally will begin with large-cap stocks,” Mr Baliga said.

According to a recent Bajaj Capital report, the time is ripe for a strong recovery with Indian equities currently trading at period-low levels. “The way markets have fallen over the past two weeks clearly shows that panic has set in, as even fundamentally strong defensive stocks are being hammered. Even potentially good news or developments such as a CRR cut or removal restrictions on P-Note have been ignored by the markets. Historical evidence states that a bottom is very near when markets start ignoring good news and over-react to even slightly negative news,” the report added.

Analysts maintain that large-cap stocks (key index constituents) are the first to bounce back as most institutional investors prefer large-cap stocks in their portfolios. Large-cap stocks have given phenomenal returns at all times when the market has recovered after bottoming out.

Source: EconomicTimes

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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.