Sunday, July 15, 2012
The markets tried their best to edge higher in the early part of the trading week, but eventually fell apart following earnings disappointment from Infosys. The BSE benchmark index had managed to close at a fresh three-month high at 17,618 on Tuesday. However, thereafter the index tumbled to a low of 17,181, down 450 points from the week’s high of 17,631. The Sensex eventually ended with a loss of 307 points at 17,214.
There has been debate amongst investors about Infosys ’ falling fortune after disappointing first quarter results. The scrip fell around 10% in two trading sessions as the market priced in lower earnings growth. On the other hand, TCS reported better-than-expected results, raising questions on Infosys’ strategy and execution skills. One of the leading business daily on Friday carried an article on the front page with title “IT’s over for Infy: TCS is the new Bellwether”. There is no doubt that TCS is doing excellent job in terms of operations and profitability, but investors must chase stocks that promise good capital appreciation for the risk one is taking.
What's common with Unitech, Everonn, Educomp, RCOM, SKS Microfinance, Kingfisher, BEML, OnMobile and Manappuram Finance
A long bear market helps separate the ugly from the bad. Over the last four to five years, investors have seen many of their investments decline by 70-90 percent and above. Many of the stocks that have fallen sharply are likely to have fallen due to over valuations at peaks of market cycle. However, there are stocks that have fallen sharply due to factors such as corruption scams, insider trading and price rigging, bad accounting practices and low corporate governance standards.
Gold, which has been in a corrective mode for a little less than a year, seems poised for another selloff as the dollar reaches its breakout level. The US dollar and gold have an inverse relationship as long as panic and inflation have not gripped the markets. Europe has been looming over the horizon for quite some time, but it has not created a panic in the market yet. Also, with the general slowdown in the global economy, inflation is not on the horizon except in a few emerging countries. If this scenario continues we could see a further selloff in gold on a dollar rally.