Markets heading for smart recovery?

Srikala Bhashyam

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.

Long-term portfolio builders can begin the process of investing through accumulation though a bull run is not in sight at least for the next 12-24 Investing in volatile marketsmonths. While it is easier to jump into equity during good times, the prospects of good returns are higher when you play the waiting game for a bull run. In fact, many would have realised that a waiting period over months has enabled investors to earn more than 20 percent if you compare the October level.

Since the market returns are directly in proportion to the staying power of the investors, those who take a long-term view of more than two years have little to complain in the current environment. Though many argue that the current bearish phase in equity markets across the globe is more painful than in the past, the process of recovery could be much faster this time due to the global push.

As you would have noticed, the recent rally in the domestic markets has been in line with the strong recovery across global markets. With the US stepping on the gas to revive the economy with more funds, investors here can think of a bull run.