Right time to invest for long-term

Onset of festive season is likely to have positive impact on markets as the worst is over

The Indian currency got battered and reached an all-time low of Rs 61.30 per US dollar last week, creating havoc in the Dalal Street. A wide majority of stocks traded during the week reached their recent new lows with a few of them even breaching below their 2008 lows. The market capitalisation slumped below one trillion dollar, thereby throwing the Indian stock markets out of the one trillion club.

Besides the weak rupee, the heinous act of the Pakistani troops killing five Indian soldiers without any provocation had instilled fears in the minds of the market men because they were apprehensive of fresh tensions brewing at the borders. Also, majority of corporates came out with disappointing first quarter numbers, heightening worries among investors. The monsoon session of Parliament which began on last Monday did not bring cheers to markets either as government and Opposition were seen at the loggerheads over most issues including those pertaining to economic reforms. Added to these worries, a few banks raised their lending rates as their borrowing costs had increased due to the denial of the apex bank cutting the prime lending rates in its monetary policy review held on July 30. And thus, a hope, as expressed in these columns that the markets could stop going further down and might stage at least a relief rally, was not materialised.

The BSE Sensex based on 30 leading scrips opened the week a shade higher at 19178 on Monday against its previous week's closing of 19164 and rallied upto a high of 19307 on the day one. But with the Indian currency once again turning week, the markets returned to their two-week-long losing streak with increased selling pressure from bull operators, individual investors and financial insitutions. The BSE Sensex then breached the psychological level of 19000 and reached a low of 18551 by Wednesday before closing at 18665.

On Thursday, however, the markets staged a minor rally on short-covering by the bear operators and also on the recovery in the rupee value after the Reserve Bank announced more steps to arrest the downfall. The Sensex on Thursday rallied upto a high of 18829 before settling at 18789 at which level it was still short of 375 points against its previous week's closing. The Reserve Bank on Thursday announced more steps to curb the fall in the rupee and also decided to suck excess liquidity by absorbing Rs 22000 crore every week through a bond sale programme. The RBI’s announcement had not only helped the rupee to get floor-lifted but also raised hopes of further firmness.

As per the recently released data, the world's two major economies, the US and China, are on a recovery path and may continue to improve in the days to come. The Indian economy too has hit the bottom in the last quarter with most of the statistics being negative or showing slowest growth in the last many quarters. We could see a ray of hope with the festive season spending as the most auspicious Hindu month, the Shravan, has set in. The monsoon rains have so far been good in most parts of the country and that could result in bumper crops. The price spiral has already peaked and a lower inflation can be expected.

All these positive factors are likely to impact the stock markets favourably in the days to come and help the beaten down blue chip stocks to look up. The markets could be expected to attract more buyers now as the prices of stocks have already gone too much down and discounted nearly all the worst. The small investors and major bull operators should buy in small quantities in stocks that they like, and think, would go up when the markets are out of the bear grip. The markets can never remain depressed forever and with the time changing for good from the worst, the sentiments would also transform from bearish to bullish. It's the right time to pick up the right stocks, provided investment is made for relatively long- term.

Talakshi Gosar