Prajna Capital - An Investment Guide

DURING the past six months, the financial and economic scenario has undergone a sea change due to high inflation of nearly 12%, softening property prices after reaching astronomically high levels, reduction in gross domestic product ( GDP ) forecasts and consequent slower growth rate of the economy, political uncertainty, sub-prime financial crisis and slowdown in the US. In view of the above, let us review what investment strategies one can adopt. STOCKS The stock market is a reflection of psychology as well as earnings, dividends and asset value. The BSE Sensex is currently at 15,000 level, implying a price to-earnings ( P/E ) ratio of about 18 (with EPS of say Rs 850) and an earnings yield of nearly 6%. So, is this the time to buy, hold or sell stocks? This is definitely a difficult question to answer as no one can accurately predict the future direction of stock markets. Historically, a P/E ratio of 15 for the stock market is considered fair, implying a BSE Sensex of 12,750. Alth...