Tuesday, January 29, 2008

Cutting edge strategy

Markets should remain flat till the meeting since it looks like a 0.50% cut is factored in already.

If the cut is 0.25%, the markets will fall a bit

If there is no cut, the markets will crash. I will buy since it means the Fed doesnt think there would be a bad recession.

If the cut is 0.50%, markets would rally a little and I would use that opportunity sell 25% of my portfolio.

If the cut is a whopping 0.75%, markets will probably zoom and I will dump stocks (40% or more) because it would be a real bearish sign for the Fed to cut so deep.

Note - where this can go wrong is if the Fed behaves irrationally and cuts rates again to appease the markets. We would sell thinking a bad recession is on the way, but reality may be otherwise.

Monday, January 28, 2008

Fed cut and we sell ?

First, read this article if you havent already ....http://www.2000wave.com/

Then, wait and see what happens after the Fed meeting. If it cuts, it probably means there is a decent recession on the way. If not, it means it was sucking up to the markets, but the credit crisis may not be so serious.

Lets assume it cuts rates.
I dont buy the argument that the Indian economy is insulated and we will grow at 8% and therefore stay locked onto your good picks and they will grow over time, blah blah. If there is a year or more of pain in US, you can bet that FIIs arent going to buy risky stocks in emerging markets. If major banks worldwide are going to be writing off bad debts like it was going out of style, where is the money to fund our infrastructure projects going to come from ? If that lending contracts, all the rosy projections for power, capital goods and EPC companies will go out the window. "PE compression" will be the buzzword of 2008. So I'm going to sell atleast 25% of my portfolio on the resulting global market rally IF the Fed cuts.

I would look at other indicators to take a call on whether economic activity is turning positive.
See the Baltic freight indices.... they are a great signal of global economic growth. They have been falling since Q3 2007. And no sign of a bottom yet. Once they bottom, I would enter stocks again. We should have probably looked at this in Nov/Dec and sold at the time. The things one has to track these days to make a few bucks :-)

Some might call this trying to time the market. I would call it exiting when you suspect an oncoming train about to hit you.

Comments ?

Saturday, January 26, 2008

Additional picks

Bilpower - PE of less than 10 after good results

Cholamandalam DBS - EPS of around Rs 4 for Q3, giving it a PE of 17, but great growth prospects ahead.

Friday, January 25, 2008

Good buys or good bye ?

Looking at Dec-end quarterly results some stocks are just screaming to be bought.

Sesa Goa - fantastic results and expansion plans for 2008-9 would play out well with iron ore prices expected to rise upto 40% in 2008.

Banco Products - great results and PE of less than 10 for an established and consistent dividend pater.

ITC - unlocking of some hidden value could happen soon. Hold on for a great 2008.

Prism Cement - good results and insurance JV in the pipeline.

Holding some cash at this point is still a good idea. More buying opportunities could present themselves. I would add the above stocks at every large decline.

Sunday, January 20, 2008

India -Long term Growth story Vs Stock Market

Over the last weeks the market has corrected close to 1800 points(about 9% decline).

The long term India growth story is intact. Our finance minister in his recent statement announced that India will grow @ the rate of 8.8% pa.

What has the growth got to do with the Stock market?

-There are very few Economies like China(projected growth rate of over 10%) & India who can boast of growing at the rate of over 8% consistently in the next couple of years.

-US projected growth rate for 2009 is about 1%

-Japan @1.5%

-The Euro Zone expects to grow at about 2%....

We need to also bear in mind that the Agriculture sector is growing at a rate of about 3% annually and Agriculture contributes about 25% of our GDP and 70% of our population still depends on Agriculture. The remaining 30% of our population contributes to about 70% of our GDP. The Industrial sector is growing at the rate of over 12% pa.

The Service Sector contributes over 55% of our GDP akin to China's Manufacturing sector contributing 70% of their GDP.

Our GDP stands over 1.1 Trillion $ and the per Capita GDP is about Rs.33,000/-.

If you look at save investment havens , I would say India will rank in the top 5 destinations . US ranks the first.

Why money will continue to pour into the India Markets

-Our Market is much organized and transparent compared to China .

-India Growth story is intact.

-Valuation levels and price multiples are in the region of 18. (Slightly higher than the Bric countries baring China).

-Corporates are growing at an average pace of over 25% pa

-The corporate growth should certainly sustain .

-The Real estate and infrastructure focus in the coming years will grow in a geometric progression.

-The Middle class population is growing at the rate of 30% pa

-About 600 million of our population is in the age group of 20-30 years and the young population will certainly spiral the growth.

-The domestic demand is extremely high. Our exports is hardly 10% of our GDP. China depends heavily on Exports. There are economies like Taiwan,Korea who thrive mainly on exports.

Where is market heading:

Stock market is going to be choppy in the coming days. The statistics shows that there has been a constant winding of the future positions in the derivative market. The Open market interest is slowly reducing. The Put call ratio is in the region of 1.05. The implied volatility of Put option continues to be higher than the call option. The IV of Nifty index is also over 30%.

Market Wisdom:

-Invest value stocks.
-Invest in Bse/NSE sensex stocks. Blue chip fundamentals
-Invest in stocks which are constantly growing at a rate of over 25%. CAGR>25% over the last 3-5 years and has an excellent prospect to continue growing at the same pace.
-Invest in sectors like Power,Infrastructure,Banking and finance,Commodity& Energy where the demand is ever raising.
-Look at investing for a longer time horizon(18-24 months).
-Buy in small quantities and Purchase at every fall.
-Invest through Mutual funds if you do not have the time and knowledge to manage funds.
-Invest in Company's with excellent track record and available at single digit PE.
-Never try to time the market. Sell when you have got the desired return.
-You should conquer greed and greed should not conquer you.
-Invest in diversified portfolio.
-Set a maximum limit to invest in any individual stock/Sector.
-Never have attachment to any of the stocks you hold.
-Book Profits from time to time rather than have Paper profits.

Thursday, January 10, 2008

Market behaves like an Indian batsman

Tentative. Thats the word for it. The way an Indian batsman plays in Australia. At 21000, the Sensex faces profit booking at every upmove and looks for direction from global cues.

Do we care? I dont think we should. The picks we have identified in the last few months are still good and their stories are intact. At the same time, if you feel some of your stocks have hit their target levels, start booking some profits. It doesnt hurt to keep some percentage of cash in the portfolio at these levels. Large falls could present buying opportunities for us. So keep some cash handy.