The rise in crude oil prices and fall in dollar rate have altered the equations in the equity markets. As a reflective of the trend, the domestic markets rallied last week and managed to add close to 1,000 points. More importantly, it has given hopes of stability despite the bear market promising to return at regular intervals.
While the market continues to offer good potential for long-term investors , there is a doubt among many as to whether this is the right time for long-term picks. The concern has been largely on account of the continued pessimism in the macroeconomic front across the globe which is keeping many away from investing on a large scale. However, investors can probably start their accumulation strategy as many factors have changed in the last one month.
For instance, the weakness in the dollar and the consolidation in the global technology space will change a few things in the domestic IT sector. In fact, the sector has emerged as one of the key components of portfolios for many fund managers and buying interest has gone up in the leaders of the pack. However, investors would be better off by sticking to industry leaders rather than mid-cap counters which look cheap because of the meltdown. Even if one were to trade in mid-cap stocks, the decision could be made after the announcement of results by the majors that are expected to throw more light on the future business trends for the coming year.
Another sector which has shown signs of recovery has been auto with some of the two-wheeler companies gaining strength on the back of their monthly improved performance. While critics may argue that last quarter of 2008 is not a benchmark for gauging the recovery, a number of macro factors such as cheaper fuel, lower interest rate and excise cuts have begun to have a positive impact on the industry.
Another interesting factor in favour of two-wheeler companies is the demand support from the rural economy . In fact, the rural economy has been relatively insulated from the general downtrend in the economy, and the spurt in property prices prior to the correction has put money in the hands of people there. Some portion of this liquidity could find its way into the purchase of two-wheelers and cars, and hence, the sector in general looks better-poised for a relatively strong show in the coming months.
Stocks from the sectors, again, will have to be picked with care. Stick to those who have shown resilience in the downtrend. Ideally, 2-3 picks for the portfolio in general are enough. Pharma has been another sector which is expected to be one of the key components of portfolios in the next 12-24 months. The sector in general didn't come under too much pressure during the Sensex's slide from 21,000 to 9,000. The potentials of the domestic economy for the pharma sector in general will keep the investor safe in the coming years. In addition, a number of companies are likely to see the second leg of revenue growth from the increased focus on wellness and healthcare in the domestic economy.
Though the sector has a good mix of players, choose your picks carefully.