Pulse racing, Dalal St focuses on Infy data

MUMBAI: The tension on Dalal St could be cut with a knife on Wednesday, a day before bellwether Infosys Technologies unveiled its all-too-important numbers.
The nervousness, in fact, was palpable across global markets.

For India, the consensus is that earnings are already priced into stocks and companies will have to deliver above-expected profits for the rally to get some legs.

“When you’ve gone from 9,000 to 14,000 in such a short time, the market would be more comfortable waiting for a confirmation of the earnings, before taking a direction again. Earlier, price was catching up with earnings, but now, earnings need to justify the price movements,” said Mugunthan Siva, chief investment officer at Optimix, the fund of funds division of the ING Group.

On Wednesday, the Sensex ended at 13,362.16, a decline of 1.5% from its previous close. Since making a high of 14,014.92 on January 3, 2006, it has declined 4.65%. Since that date to Tuesday, benchmark indices in developed markets like the US, the UK and Singapore have also been under pressure. So have emerging markets like Brazil, Argentina, Indonesia and South Korea. Japan’s Nikkei bucked the trend marginally, while China’s Shanghai Composite managed to return 4.95% over the period.

“There is a lot of uncertainty on the direction that equities could take from here. World over, they have corrected quite a bit from their recent tops, but the nature of the
decline does not indicate whether it’s going to be just a small correction, a larger one or the end of the rally,” said Deepak Mohoni, managing director of trendwatchindia.com.

But talk on the street is, it’s early days still to write off equities.

For commodity prices have also slumped in the last week, with Brent crude slipping from around $57 per barrel last week to $55 a barrel now. Gold has also come down from $636 a troy ounce last Wednesday to around $611 now.

While Mohoni has a wait-and-watch approach, Marc Faber, or Dr Doom, is vociferous in expressing that he is not a great buyer of assets now.

In an interview to Bloomberg Television on Monday, he had said that the bullish outlook of traders in everything from bonds, equities and commodities to real estate and art
suggest valuations are peaking.

“In the next few months, we could get a severe correction in all asset markets,” Faber was quoted as saying.

“In a selling panic you should buy, but in the buying mania that we have now, the wisest course of action is to liquidate. Emerging markets could get kicked in the next three months, so I’d be careful of buying Russian shares,” Faber said. “I’d also be careful of buying China and India shares now.”

Picking multibaggers in India has become quite a task. While in 2006, you could get it right if you picked the right sector, things have changed since we stepped into 2007. “It has become a stock picker’s market and one will have to be very stock-specific,” says Siva of Optimix.

Are there other asset classes that could look interesting or as Dr Doom says, are they all on a wane simultaneously.

“Commodities have also witnessed a slump, and what has happened in the US would tend to imply that there could be a slump in real estate worldwide. However, it would be difficult to predict when, because this sector enjoys very long business cycles. Every other country has been talking about inflationary pressures, and if this is the case, interest rates are bound to go up. In this scenario, debt could become an attractive alternative, though one wonders how much money would actually flow into this asset class. As interest rates rise, which would happen sooner or later, the real estate sector could also come under some pressure,” added Mohoni.