Invest in stocks which are still looking attractive

The market has surprised everyone with its sharp and decisive move in January. We began the year in an extremely pessimistic environment. There were concerns of a worsening Euro Debt Crisis together with a complete policy paralysis. This resulted in shattering of business confidence in the domestic economy. However as is often said ‘bull markets climb the walls of worry', a very strong rally started just when everything looked lost. In fact we may have reversed our long term trend, though given the extent of problems surrounding us it seems almost an impossible thing to do. Smart money seems to have factored in the worst on both the domestic as well as global front. With liquidity anyway being abundant, moves on either side are very swift these days. Should this uptrend sustain for some more time a left out feeling would emerge amongst investors sitting on the sidelines and that could result in a significant upside from here. A favorable verdict from the ruling UPA coalition’s point of view, in the state elections, especially in Uttar Pradesh could be a decisive trigger. Also the budget could usher in some badly needed reforms and policy initiatives.

We are right now at the cross roads and markets could head either way in the next couple of months. However the weight of evidence suggests that markets could be headed higher in the near term. Investors who were fortunate to invest at lower levels should stay invested at least till the first week of March and use any pull backs to add to their exposure. Investors waiting on the sidelines should look for opportunities to enter into stocks which are still looking attractive. Only an extremely negative development in the International Markets could mar the near term prospects of our markets.  Beaten down sectors like banking, infrastructure, capital goods, metals and power offer the best buying opportunity.