On a day when the stock market witnessed its largest ever fall in a single day, market pundits and analysts express just a simple message for retail investors: be cautious, tread carefully, but don't panic as the longer-term economic picture for India appears strong.
With the BSE 30 share index -- Sensex -- losing 822 points during the morning trading session (the Sensex is still down has since recovered a lot after Manmohan Singh's pep-talk), prices of several blue-chip and mid-cap stocks have fallen by nearly 30 per cent over the past few trading days.
This offers a great opportunity as most stocks appear to be at their most attractive valuations for some time.
Still, the advise coming through is to wait for a few trading sessions, until the panic sentiment dies down.
A section of the stock broking community and mutual fund managers says that while hedge funds and high net-worth individuals have been the main sellers in the past five days, the sentiment will not improve until the selling from local operators and margin traders stops.
"It will be better to sit quietly at the sidelines. Considering how stocks like ONGC, GAIL and other petroleum stocks have pulled down in recent days, they appear attractive buys. However, it would be advisable for retail investors to wait for a few more days when the storm blows away. There will be a bounce back," said Sanjay Suratwala of BSE institutional brokerage firm Dalal & Broacha.
R Balakrishnan, chief executive of Sahara AMC (erstwhile First India Mutual Fund), said, "The market has over-reacted. The role of local operators and institutions has also been critical. The markets appear jittery over the lack of clarity in the economic reform process but this will get cleared in a few days. Unless one has a strong appetite for risk and the roadmap is clear, it would be prudent to stay clear."
Another senior fund manager, on the condition on anonymity, says: "The bloodbath was similar to that seen on Friday. The fear sentiment will prevail for a few more trading sessions."
The market grapevine suggests a payment crisis for some brokers and settlement problems in the futures markets. However investors should prefer to look at the medium to long term.
Kotak Mutual Fund, in their latest equity markets prognosis, says, "We believe that markets will be volatile in the interim, till some clarity emerges on the shape of the new government and its economic agenda. Investors should look at this uncertainty to increase their exposure to equities gradually."
Realistically, it will be difficult for the new coalition government to adopt hard measures like labour reforms, realigning the small savings rate, reducing subsidies and pursuing aggressive disinvestments. There is also a fear of the new government becoming populist and putting further pressure on the fiscal balance of the economy.
Therefore, investors should wait until the new government spells out its policies. The investment strategy, however, should be stock-specific in nature. Marketmen also say that in such volatile trading, the redemption from the mutual fund industry could be expected on Tuesday.
Global investment banker and equity research firm UBS Asia said that it will be 'time to reboot' for India. Considering that the composition of the ministerial cabinet is not known, the perceptions over the continuity of reforms are likely to shift and both portfolio inflows and Non-Resident Indian deposit flows could suffer, but only over the short-term.
"However, we do believe that that if Dr Manmohan Singh and P Chidambaram are assigned key portfolios, concerns of market participants will be substantially mitigated," Sanjay Mathur, analyst, UBS Investment Research said in his report.
During the previous tenor of the Congress, the two had held the finance and commerce portfolios and were highly regarded for their reform-oriented policies.
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