Wait out market

THERE is no doubt about it -- we are in the midst of a severe correction, with the market down 40 per cent from its peak levels in February this year. In such times, the investors have many questions to ask and this is what we have to say.

Why has there been such a sharp fall in the market?

There has been a re-rating of the technology sector worldwide, and ICE stocks have declined sharply. In India, the FIIs have been net sellers for their own reasons, and with no offsetting purchases from domestic institutions, the market has been on a free fall.

How long is this going to last? When will the turnaround happen?

We believe the worst is behind us, and that we are close to the bottom. We definitely see a positive trend emerging latest by March 2001, although we would not be surprised if it happened much before that. And the basis for this optimism is that select stocks, if not all sectors, are now very attractively priced vis-a-vis their fundamentals.

When will stock prices and fund net asset values (NAVs) return to their peak levels?

While it is hard to predict when the Sensex or specific stocks and funds will exactly rescale their earlier peaks, we believe the potential currently for stock price appreciation in select counters is very strong. The better companies are well-positioned to see sharp appreciation over the next few months, and we see these leaders being in positive territory within a year, on a conservative basis.

What lessons have been learned?

That we tend to be more aggressive and risk taking in a bull market, and cautious in a bear market, when it should be the other way around. That even in the hyped up `New Economy', profits matter, substance prevails over gloss, and getting `carried away', could mean getting `blown away'.

What do we do now?

Stay invested, as the upside potential versus downside risk looks extremely favourable. If we stay focussed on the long-term wealth-building goals -- children's education, buying a house, comfortable retirement -- we will realise that equity funds have given superior returns when evaluated over a 3-5-year perspective, and are the best way to accumulate substantial wealth. Consider this -- as on October end, Bluechip Fund has given 23 per cent and Prima Plus 20 per cent of annualised returns for the past five years; this is proof that well-managed funds can deliver good returns over time, and even across volatile markets. Let us hope that as the year is ending, the turnaround in market sentiment is emerging.

(Source: Latest performance report of October 2000 of Kothari Pioneer Mutual Fund.)

Pic.: Mr Vivek Reddy, CEO, Kothari Pioneer Mutual Fund.