Is this the time right to buy into stocks?

MUMBAI: It’s good time to be a retail investor. At least that is what brokerages are saying. Brokers, hit by the flight of retail clients following the reigning volatility in the market, are trying to sell the ongoing correction in the stock market as the ideal time to buy stocks.

Investor education seminars, research reports suggesting sure ‘winners’ and ‘buy’ SMSes - top brokers are trying every trick in the book to woo the retail investor. While most brokerages maintain that market volatility will continue for some more time, they say long-term investors should use this opportunity to pick stocks.

But is it really good time to buy?

“Valuations have become attractive after the correction, especially in comparison with peak levels of May 2006.” - This is one of the favourite arguments of many brokerages.

But, Lalit Thakkar, director research, Angel Broking, warns that there may be a flip side to the valuation story. “A drop from their peak levels doesn’t make a stock cheap. During the period under consideration, the overall economic scenario has changed. Things aren’t as compelling as they were in May 2006,” he says.

Things are certainly looking to slow down, according to an Angel report. The report projects earnings growth of Sensex companies at a much slower 13.5% in FY08 and FY09 as against 35.8% growth in FY07.

Analysts warn that investors must put the bull run of last three years behind them and settle for a slower growth.

The clue may be in the FII (foreign institutional investor) movements, says Ajay Padval of Mehta Equities. He feels that, though stock prices may have fallen from their peaks, pulling down valuations, they may continue to languish at lower levels in the absence of interest from the biggies. “When there is euphoria in the market, strong players like HNIs (high networth individuals) and FIIs come in. When these strong hands quit a particular sector or stock, they have solid reasons to do so. After their exit these stocks are held by weak hands and unless there is some interest from the big players the chances of an upside are limited,” he says.

Thakkar of Angel also feels things are not going to get any easier. He says, “During the bull run, every stock turned out to be a winner. But, making money in stocks won’t be a cakewalk in the future. One needs to be selective in stock picking and should avoid the darlings of the market like real estate, commodities etc.”

Though these stocks might be attractive buys based on their fundamentals, retail investors should wait for markets to stabilise a more, feel analysts. This is especially true with global factors like yen carry trade and a cooling US mortgage rates holding sway over the markets.

Says Padval, “Retail investors would do well to wait till there is stability in the market. Otherwise, the sorry story of entering on a high and exiting low might continue.”