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Long term view for wealth creation

The second quarter has come to an end and there is an expectation in the air. The anxiety is more pronounced this time as the markets have not shown signs of recovery for the second quarter in a row.

Needless to say, this has been one of the challenging periods for the stock markets across the globe and in the case of India, the challenge has been compounded due to the high rate of inflation, election year and concerns of fiscal deficit. As a result, the local stock market has failed to cheer up even on days when global markets have shown signs of recovery.

If industry sources are to be believed, there is lack of patience for a long-term investment strategy despite the fact that many stocks in mid-cap and large-cap are available at two-year-old levels. Much of the problem is also due to the unexpected weakness, which entered the markets after January highs which has left many staring at a weak portfolio. As a result, broking houses are advising their high net worth clients to book profits at regular intervals though the task hasn't been easy.

In such a market scenario, it is not an easy task for investors to bet on sectors or stocks though technology, pharma and FMCG are proving to be safe bets in the current environment. You can also look at companies in the consumer durable space, which have a focus on high end products. Interestingly, despite the concerns of a slow-down, industry sources say that there is not much pressure faced by luxury brands as liquidity and ability to spend has remained intact among the affluent.

On the other hand, the middle-income group, which is more price-sensitive, has begun to tighten its spending habits and that is likely to have its impact on a number of sectors. The silver lining is that this segment also tends to push up its savings in tough economic conditions and there will be more on the table for investors to put money into.

Coming back to the quarterly expectations, technology has turned into a safe haven because of its insulation from inflation and oil price shocks. However, no turnaround in the prospects of the US market has proved to be a negative factor for the sector, though domestic companies have begun to look outside the US stock market quite aggressively. Markets like Europe, Australia and South-east Asia are likely to be bigger contributors and for services companies focused on the domestic market, it could be an interesting quarter.

In the domestic market, sectors like banking and retail have turned aggressive spenders on technology. In the case of banking, the second round of liberalisation is due next year and hence one has already seen hectic activity in the space.

Irrespective of the sector you choose, you need to take a long-term view as the market is lacking direction and there are no visible triggers for the Bull Run to resume in the current scenario. The comforting news is that the current market offers excellent potential for accumulation and one needs to be patient for wealth creation.

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