THE POWER OF HOLDING.....

The past 12 months saw hope triumph over despair and bulls tightening their grip on the Indian stock market. Generous stimulus packages had the desired effect of propping up the global economy. Those who had the courage to remain invested are now laughing their way to banks

PSYCHOLOGISTS say hope, fear and greed are the three basic elements of stock markets. And whenever fear is the overriding factor, it is time to enter the market and remain optimistic. But, in reality, to go against consensus is not easy.
In April 2009, fear and scepticism were at their peak. Data coming out of economies were poor and even political leaders were cautious before making tall claims of recovery. Home sales in the United States were down and jobless claims were rising every month. Nobody was giving a chance to equities. Every central banker was preparing for another round of bailouts and was sweating at the thought of ill effects such as high inflation.
It appeared that every economist and analyst had turned into an environmentalist and `green shoots' and `yellow weeds' were heard from Dalal Street to Wall Street. It is tough to take a contrary stand in life, but the people who had the courage to be optimists in the gloom of April 2009 are the ones who are laughing today with equity valuations surging.
Dow Jones Industrial Average has crossed the 11,000 mark, and, in India, everyone is talking about when Sensex will break its high above 21,000. Some people are guessing that Sensex will set a new high this year.
Predicting Sensex is a hazardous business. One should not try to time the market. Instead, one should look at valuations of companies and decide whether to buy them or sell them and ignore the free advice doled out by analysts.
After May 2009, the world started to realise that liquidity, which most central banks had injected into system, was going to have some impact on asset prices. Much before economic recovery gained a foothold, assets began to gain weight.
This brought institu tional investors back into equities, especially in emerging markets such as India, where growth had only slowed down.
Aggressive hedge funds entered India anticipating a rupee rally, considering the surge in FII and FDI flows. These inflows accel erated when federal elections threw a surprise and a stable government came to power.
The global market also started to improve once it was clear that the worst was over for the US financial system and another major failure was not on the cards. But Europe did not show any sign of such recovery, except in Germany, which, technically, was the first country to come out of recession.
In the case of India, gains from equities have been extremely high as the economy showed considerable strength during the crisis. Corporate India has come out stronger, and the better than expected sales of Jaguar and Land Rover are examples of Indian companies successfully taking a contrary stand and passing with flying colours.
A basic strength of India is its population. It is a country of young people who have the opportunity to spend what they earn, making India a big domestic consumption story that is going to grow over the decades. Indian markets are going to beat their peers despite the occasional phases of underperformance due to overheating. 14,284.21 May 18, 2009 Sensex climbs 2,110.79 points on UPA win 14,658.49 July 2, 2009 Petro prices raised by Rs 4, diesel by Rs 2.01 14,265.53 June 18, 2009 The rate of inflation falls to negative zone for the first time in history 14,043.40 July 6, 2009 Union budget 2009-10.