SHOULD WE BUY STOCK NOW?

Right now Indian stock market is presently second most costly than only to Chinese stock market. The unprecedented capital flow in all possible form is worrying our market regulators. Even the P-note scare could result in a small flicker in the up and up going Sensex graph. Probably the market is over heated as some experts are saying. But any case it is certain we are in a long term Indian Bull Market.

It is difficult to make a buy call when the stock market is at all time high, and when the input news is of mixed kind. We have two choices in front of us if we have some cash waiting in our pocket to invest in stock market. The first choice is to wait for a market correction which is being predicted by many pundits or the second choice is to just take the plunge (or buy at the present rate).

To me both the above cases are extremes on opposite sides. If one waits for a market correction which may even come after a good rally of another few thousand points, may prove to be costly to the investor as he will miss the run of the market. Even the correction at that point may not be deep enough that will see the market lower than the present level. In any stock market 10-15% correction is a good correction.

And as in the second case, after buying at present level the market may tank (again 10-15% correction) and it will take some real long time to come back to present level. The buyer will have some agonizing time if he invests all his monies right now.

It is a matter of conviction, if we believe that we are in a strong Bull Run than the situation will be as follows:

In any bull market it is always a buy proposition for any buyer. We are going to find our market at higher level after the gap of a certain time. Especially those stocks with strong fundamentals, strong order book or in the right sectors. If one decides to enter market he can invest at any point of time, say one invests 50% of his capital in his stocks of choice, and may take the opportunity of any correction (10-15% correction of the index) to invest rest 50%. If the correction is elusive then invest another sum of 25% of his capital in the same stocks after every price rise of 25% of his stock. This way the buyer will always have his stocks at lower value than the market price at the same time will not miss the present Bull Run.

It will be a pity if one misses the present Bull Run by sitting in the side line. This run may not be repeated in future as all factors favours Indian Stock market right now.

Footnote: Stock market is again all about conviction of the investor. My conviction, yes we are in a strong Bull Run of Indian Stock Market and it is due to followings:
There are many theories after the North American sub-prime crisis that all the emerging markets are poised to fall as the cash starved American shoppers will feel the pinch in due course. But probably not the Indian stock market, as the 1.1 billion consumer of domestic market will provide an effective shield against any financial instability world wide. The calculated reforms in the Indian financial sectors have resulted in a very stable economy which is yielding results at present. Indian domestic market is getting bigger as the per capita income will cross $1,000 within this year. Our domestic savings is highest if we compare with developed countries. We can look forward to sustainable growth rate above 10 percent by 2011 if we further liberaralise our labour market, as concluded by a study by “Organization for Economic Co-operation and Development”.

I suggest reading the following article: In the Comfort Zone: by George Wehrfritz and Jason Overdorf. Newsweek, October 22, 2007