Reference Auto

Scams in India — the 2G scam as well as the recently surfaced housing scam — continued to batter the stock markets and this could dampen the Sensex further for quite some time. Added to this is the Korean conflict, which has dealt a debilitating blow to the bourses.

The Bombay Stock Market’s benchmark index, the Sensex, tanked 449 points last week, putting the last three weeks’ loss at 1,868 points. To be precise, the Sensex declined 448.83 points to 19,136.61 points last week. The country’s stocks remained subdued for the third straight week since Diwali when the Sensex peaked to a high of 21,004.96.

The National Stock Exchange (NSE) 50-share index, the Nifty, closed at 5,751.95 points, down 2.63 per cent in week’s trade. The next few weeks could see the markets in a bearish phase which is the right buying opportunity for investors, as company scrips generally remain subdued.

However, on Monday, the stock markets made a smart recovery with the Sensex ending its four-day loss and closed with a gain of 268 points. This was mainly on account of buying in heavy weight stocks such as Reliance Industries and ICICI Bank. However, with the current state of affairs, the Sensex is unlikely to see a recovery in the near term.

There is another reason for worry. Foreign institutional investors or FIIs have been pulling out from emerging markets like India. With the scams surfacing, they are likely to stay off the Indian bourses for a while. So, the markets have hardly any trigger to pull them up in the short term.

On the flip side, a bearish phase provides an opportunity to invest in mutual funds as well as stocks. Basically, to make the most of a stock or a mutual fund, one has to identify a bottom value (a value after which the stock will not fall). It is difficult to identify an exact value and the value is identified based on perception.

After a bottom is identified, the next step is to pick some stocks, preferably from large caps like Reliance, Infosys, State Bank of India, among others. Stay invested till the stock markets reach a new high (again, this is based on perception).

The current volatility of the Indian bourses suggests that the markets could reach their new highs within the span of a year or 15 months. With the Sensex and other indices touching their new high, it, is the ideal time to offload or sell.