SIGNS OF TIREDNESS
This week, the stock markets all over the world and particularly in India continued their upward march,albeit at slower pace. The volatality factor is back again in its full force, especially in emerging markets like Hongkong and India. These markets continue to ignore the negative factors which are like live mines which can explode anytime. They are only going by momentum and moneyflow with no relevence to the valuation. How long this momentum will continue nobody knows though every participant knows that it will loose stream at some point. It is like a rubber band which is streached endlessly and at some point it will snap.
WE have seen in the past that a particular sector leads the market up - in 2000 it was technology, in 2005-2006 it was sugar and so on. And at the peak of their valuations, convincing stories will be told to justify the valuation.When Wipro touched around Rs.40000/- for a Rs.10/- (adjusted to 1633 after bonus & split & now trading at 460), lack of enough floating stock was the only reason for the hot money which chased that share disregarding that the PE was around 600. When a Rs.1/- face value of Zee Tele touched Rs.1600/- the PE was around 900. And most of these shares corrected anywhere between 80 to 90% from their peak value, Wipro coming down to 170/- level and Zee tele touching around Rs.70/- before recovering to where they are now but still far below their peak rates after 7 years of blocking money.
The case of Sugar companies was almost similar though the PE valuations there did not go beyound 40-50. And still most of these shares have lost anywhere between 70-90% value.
With this bull phase triggered primarily by the Infrastructure,construction and real estate sectors, it will sure repeat the stories of I.T Bubble, Sugar Bubble and so on.While the companies project a growth rate of 25-30% annually, the stock prices have already discounted 2009-2010 earnings. With interest rates not likely to come down sharply so soon and the purchasing power of NRIs(one of the major contituents of demand side) getting reduced significantly by the appreciation of rupee, the first signs of a slowdown is already evident in many cities. This will only have a ripple effect in the coming quarters resulting in a sharp erosion in stock valuations.So watch out for this space carefully and lighten your exposure to this sectors which can be a big drag in your portfolio
WE have seen in the past that a particular sector leads the market up - in 2000 it was technology, in 2005-2006 it was sugar and so on. And at the peak of their valuations, convincing stories will be told to justify the valuation.When Wipro touched around Rs.40000/- for a Rs.10/- (adjusted to 1633 after bonus & split & now trading at 460), lack of enough floating stock was the only reason for the hot money which chased that share disregarding that the PE was around 600. When a Rs.1/- face value of Zee Tele touched Rs.1600/- the PE was around 900. And most of these shares corrected anywhere between 80 to 90% from their peak value, Wipro coming down to 170/- level and Zee tele touching around Rs.70/- before recovering to where they are now but still far below their peak rates after 7 years of blocking money.
The case of Sugar companies was almost similar though the PE valuations there did not go beyound 40-50. And still most of these shares have lost anywhere between 70-90% value.
With this bull phase triggered primarily by the Infrastructure,construction and real estate sectors, it will sure repeat the stories of I.T Bubble, Sugar Bubble and so on.While the companies project a growth rate of 25-30% annually, the stock prices have already discounted 2009-2010 earnings. With interest rates not likely to come down sharply so soon and the purchasing power of NRIs(one of the major contituents of demand side) getting reduced significantly by the appreciation of rupee, the first signs of a slowdown is already evident in many cities. This will only have a ripple effect in the coming quarters resulting in a sharp erosion in stock valuations.So watch out for this space carefully and lighten your exposure to this sectors which can be a big drag in your portfolio
Labels: stock market - indian and global
posted by manipayal @ 10:34 PM
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