Volatility ahead

It could be a volatile year at the bourses :::


The much-publicised public issue is just behind us and it is interesting to see how the market behaves after the mega event. If the public response to the Reliance IPO is any indication, equity seems to be the flavour of the season. The issue was a talking point at every cafeteria in the corporate sector and many investors ended up opening demat and trading accounts purely to catch the issue.

While a good response to equity issues from retail investors is a welcome sign, the frenzy makes one wonder whether the Indian investor has begun to get unreasonable with his returns expectation. In this backdrop, the recent correction in the market was a welcome relief as some of the over-heated stocks shed their superlative gains. On the other hand, the tech sector continued to be ignored by market men despite delivering results on expected lines. The results failed to boost the market sentiment, with investors chasing higher returns in recent times. While the short-term trend continues to be volatile and uncertain, investors with a long-term view can continue to hold on to their investments.

Sectors such as IT, pharma and technology may be used as defensive sectors. There are still no clear signs of reversals in the fortunes of this segment and instead, a further weakness is being feared in the light of a slow-down in the US. Hence, for short-term investors, technology may not be a safe haven in the coming days. On the other hand, sectors such as banking and financial services, infrastructure and power continue to hold promise with energy being the latest entrant to the list. In the case of infrastructure, fresh buying interest can be foreseen as nearly half-adozen funds have mobilised or in the process of mobilising funds for investing in the sector.

In addition, investors who have penchant for a contrarian view could bet on auto and auto components as action seems to have picked up in this space. The softer interest rate regime could boost the volumes story for the two-wheeler sector. On the other hand, the increasing competition in the fourwheeler segment has once again brightened the prospects of auto component companies. The fact that most of these stock prices have been stagnant in the last couple of quarters reduces the risk-reward ratio for these companies. If there is another sector which is a direct beneficiary of a lower interest regime, it surely is realty. The sector has been one of the most volatile sectors at regular intervals.

The signs of interest rate fall have offset the negative sentiments. Any sharp fall in interest rates will be a big boost for the sector, and hence, its fortunes are directly linked to the credit policy outcome. It may not be a bad idea to use market corrections to accumulate fundamentally good stocks for a long-term portfolio. Irrespective of the choice of sectors, it's time for investors to take a long-term view and the current year well prove to be one of the most volatile years in recent times. While the annualised yield may not be handsome, one can better their portfolio returns by being patient and using deep corrections to pick good stocks.