Markets heading for smart recovery?

29 Mar 2009, ET Bureau

A week is a long period for stock markets these days. It can change the mood, index levels and even make investors look at equity all over again.

That's been the trend in the domestic stock markets in the last few days as they have been rallying smartly amid bear market conditions.

Many have been wondering what led to the sudden change in mood among investors at a time when there are specific concerns such as elections and annual results from the corporate sector staring at us. To a great extent, the rally has been triggered by improved liquidity from the institutional front, led by both foreign institutional and domestic institutional investors.

The volumes have been on the rise even in the cash segment as indicated by many broking houses. Not surprisingly , investors are back to 'buy' recommendations from many analysts though technical analysts have been still harping on the fact that the index in the range of 6,500 is still around us. Surely, that is a worrying factor for small individual investors.


Though individual investors too can take comfort from the fact that the markets have once again moved into a buying mood, they need to keep in mind the fact that the year 2009 on the whole is likely to be one of the challenging years for equity investors. The global financial mess is unlikely to disappear in a hurry and hence, the economies around the globe are in for a challenging period in the next 12-24 months. As any fund manager would tell you, the biggest worry about the current crisis is its lack of clarity (in terms of its finale). Hence, even as the market stages its interim rallies which are more relief providers than conviction, investors need to reconcile to the fact that weakness is an integral part of the markets this year.

One of the best ways to play the current trend is to narrow the buying and selling range for the short to medium term portfolios within an index level of 8,000 to 10,000. In the last 12 months, the markets have not been successful in breaching both levels barring in October when there was mayhem. Hence, it would be advisable for investors to distinguish between short and longterm portfolios.