15 February, 2006

Bulls or Bears ?

The Indian stock market (Bombay Stock Exchange or BSE) has touched dizzy heights in the last fortnight crossing the psychological 10000 mark. The rate at which the sensex has climbed is also noteworthy, taking just under 2 months to jump from the 9K to the 10K mark. After the Dot Com bubble burst in 2002, the Dow Jones never managed to touch it's peak which it attained during the boom, but the BSE has not only touched the peak but has also gone on to record new highs. So what does all this mean to the investor who invests his savings and anxiously waits for quick and better returns on his hard earned money?

In the stock market setup there are basically three entities that are involved - the buyer, seller and the stock broker. When the markets are bullish lets see who all benefit from the climate. The seller benefits by reaping good returns on investment, the broker benefits because of all the trading activity, the companies listed on the exchange benefit as they get an easy opportunity to raise huge capital sums easily, the investment bankers benefit as they get the business of bringing out IPO's and of course the politicians who can boast of a thriving economy. But is it good for the common man who wants to invest his savings in stocks?

Simple mathematics will suggest that the value of the investors money is reduced and the stakes become very high for him. Given the volatility of the stock market, it is very difficult to predict if the markets will go higher and higher and bring in returns for the investor who has invested when the markets were bullish. The Indian economy with its dependence on the monsoons cannot be expected to perform well under all circumstances. This maybe a pessimistic view when all around us people are rejoicing and the economy is flush with liquidity. But then i feel that these are genuine concerns that a wise investor should think of before investing bigger sums of money in the stock market. Every company into which your investment goes should be carefully checked for its past trends and its roadmap for the future should be carefully scrutnised. Given the flurry of investments made by MNC's in the Indian economy, there should not be much concerns about the markets doing better. But then the wise will investor should be prepared for the lean season as well.
Or are we better off praying for a bearish market in 2006? Ouch !

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