Market has been good to long-term investors

[Sukumar.N]

AHMEDABAD: While the stock exchange has wrought havoc on daytraders,
it has been kind to long term investors. Those who had invested in
blue chips
at rock bottom prices five years ago are fetching high returns even at
today’s prices. Not just blue chips, but most of the midcap and small-
caps are being quoted at much higher prices today than they did five
years ago.

According to a study, out of the 187 scrips in the ‘A’ group as many
as 166 or 89% are giving significantly high returns compared to their
rock bottom prices in the year 2002. Take the case of United
Phosphorous. At the close, last Thursday, the scrip was being quoted
392 times up than the bottom it made six years ago. On March 26, 2002,
the company’s share price after its adjusted value was 24 paise, which
on Thursday closed at Rs 94.15.

Among such shares giving high returns are JSW Steel (119 times),
Jindal Steel (45 times), Crompton Greeves (41 times), Kotak Mahindra
Bank (30 times), Bharti Airtel (29 times), Adani Enterprise (28
times), Sterling Biotech (27 times), Titan Ind. (26 times) and
Hindustan Zinc (23 times). The benchmark index of Bombay Stock
exchange, Sensex is showing a return of three times from its April
2003 level of near 2800.

This fact is not restricted to only ‘A’ group shares. Of the 1939
shares traded on BSE on Thursday, as many as 92%, or 1,790, have shown
positive returns over their rock bottom prices six years ago. These
include Jai Bharat Textiles at the top with as high as 22,495 times
return. Among the other midcap shares with high returns are ICSA Ind.
(681 times), Core Project (402 times), KS Oils (383 times), Praj Ind
(207 times), Aban Offshore (133 times), Unitech Ltd (126 times) and
Elecon Engineering (86 times).
over Rs 8000 crore

The story is exactly opposite for those who had invested at the peak
of the market in January 2008. However, market experts believe that if
investments are for a long term then these too will give good returns.
Says Malav Shah, who has been dealing with the stock market for 15
years and is the research head of brokerage firm Monarch Project and
Finmarkets: “One should treat equity as a wealth creator instead of
investment. Those who invest their savings in the equity market should
do so for a long term. This is so because wealth creation takes time.
The capital invested for a long time is bound to generate wealth after
passing through political, global, natural or any other calamity.
However, it is important that the investment should be made at the
right time in a business having a good management and a good business
model.”

“One should enter the equity market when the prices traded at lower PE
and get out of it when the PEs seems excessive. The current price
level provides good opportunities for long term investment,” he adds.

Analysts believe that those who want to invest in equity should look
at the company’s past growth history as scale of the companies has
become bigger in the last five years. “At present, the size of the
some corporates have become much bigger than what they were five years
ago. It would be difficult for companies, which had shown higher
growth rate on smaller base, to show higher growth rate on expanded
base. So, the market would not be ready to give them higher PE as
their future growth rate will be much lower compare to their past
performance,” says Sailav Kaji, the derivatives strategist at Pink
Research. “At present, several scrips have come to their five year old
level, which means there is an opportunity to buy these scrips even
while these companies have grown. Thus, this provides a good bargain
hunting opportunity for those who want to invest for five years or
longer period.”

N.Sukumar
Research Analyst
www.kences1.blogspot.com