play straight

The mood in the markets is far from assuring. I must admit that I underestimated the pain that our economy is suffering from. The news flow continues to have a negative bias and the issue of pledged shares has become a bogey it seems. Now that Sebi has mandated corporates to disclose the pledged shares so that all category of investors have this price sensitive information, a lot of skeletons are coming out of the cupboard.

The important thing to note is that large caps continue to languish. The problem is that investor sentiment has been so badly mauled that valuations are no longer the issue. People are worried that there is more headroom (downward) for prices of large caps. Scrips like Reliance, Larsen, Tata Steel can actually go down by another 20-30 per cent from current levels, only because bears are gaining an upperhand. More on this later.

There has been a perceptible improvement in sentiment as is evident from the return of buying at lower levels. There are clear indications of value buying in pivotals and even fundamentally strong mid-caps. Experts believe that shorts will be forced to rush for cover if the rally continues another couple of sessions. But personally I am expecting the market to correct to around 2800 level of the Nifty. Strong support is expected at this level. Staying liquid is one way to benefit from corrections in stock prices. If you’ve sold now you can latch on those scrips at lower levels. For the time being, the worst appears to be over. One would require a major negative news to embolden the bears. Still caution is advised.

The markets rallied strongly today with the active participation of all major stocks. This has happened after a long long interval. This bodes well for the market overall. Although caution is still advisable one can still make money by adopting realistic entry and exit targets for individual stocks. There are several large cap stocks which have shown a lot of resilience at lower levels and have seen consolidation moves. Those who picked up stocks in the third week of December have benefited from the rally which started building up towards the end of 2008. If you can exit as fast as you enter with realistic targets there is lot of money to be made. Happy Investing in 2009 and a Very Happy New Year to All!!!

When the underlying mood is bad, even good news is taken with a pinch of salt. The latest example is the government announcement on a major stimulus package aimed at reviving demand for industrial goods. Yesterday, our markets rose sharply only to fall again, belying hopes of a positive weekend. My gut feel is that sentiment is slowly improving as is evident from fresh investments made by foreign institutional investors. Happy investing before Christmas revelry begins!

We are still struggling to figure out whether the market has bottomed out or not. An answer is still elusive. It does not appear that bears have run out of steam yet. Judging by the way the market is again trending down, one would be tempted to believe that the worst is not yet over. After steel and auto and real estate, more and more sectors of the real economy are slowing down. Job cuts, forced leave without pay for employees of large companies, rising inventories, lacklustre demand for goods and services, rising credit sales, falling real estate prices, erosion in market value of investments have taken its toll on investor confidence. Investors are wary of committing fresh money into companies with sound fundamentals. What to do? I continue to believe that even though the recovery process will be painfully slow and tiring it will be a good idea to invest in small doses and make exits with a small profit margin. Even a 5 per cent profit is worth its weight in gold.

it is now more or less certain that the falling prices in our stock markets is a function of FII money flowing out of the country. Valuations are no longer sacrosanct. Fundamentally strong stocks have been battered so much that now they are in the company of notorious stocks which have no pedigree. Does this mean, these stocks are out of favour and should be discarded? Certainly not. If Tata Steel is today quoting at around Rs 190, it is because of a couple of important reasons. The company, like many such investor favourites, is the victim of FII selling, short selling and slowdown in earnings of the company in the short term. The company is worth accumulating by those with an investment horizon of two to three years.

I’ll be frank with you. I have been expecting the market to bottom out from around 3000 level of the Nifty. I have been proved wrong. The market is like a mad elephant which is uncontrollable when it is mating. The panic in the market had taken the Nifty to sub 2600 levels during intra-day trading on 27th Oct before bouncing back to 2650 level at close. It is good to look at indices for gauging market sentiment at a given point in time but when it comes to analysing valuations of individual stocks, one can get stocks at more or less same levels (plus or minus 5 per cent) for an index movement of 100 or 200 points unless it is a high beta stock- which simply put a stock which rises or falls more than proportion to the corresponding rise or fall of index.

I am convinced that buying now should be rewarding irrespective of what the Nifty does. You never know it may sink to 2000 level but a high beta stock gives you opportunities to cash in on the way up, like it happened on 28th, Diwali Moorat session. One stock which bounced back sharply was UTV Software, a leading media player. Believe it or not, this stock had touched a low of Rs 405 the previous day before closing at Rs 450. Next day at the Moorat session, when sentiment improved with positive cues from all major markets, UTV spurted to a high of Rs 595 before closing at Rs 564. If this isn’t opportunity what is?

The bottomline: Pick your stock with some effort and then stick to it with conviction. You will have no regrets. But remember, we are in difficult times. Curb your greed and sell if you have made 40-50 per cent on your short term investments. You may get more if you are lucky or less if you are unlucky. But you’ll learn a lot on how to trade for profit.

Debate has already started among knowledgable market circles as to what when would the Nifty bottom out? This is tough to answer. But the market is definitely close to its bottom for the near future. The last major bottom made by the Nifty was 3050. The next support, is believed to be around 2900. But judging by today’s markets the return of investors looks imminent which should generate fresh long positions in pivotals.

The market sentiment has been so badly shattered that no news is enough to soothe frayed nerves of investors. Money is gradually moving out to safer havens like fixed deposits. The more the market falls, more nervousness creeps in. Buyers are shy to step in as they see steady erosion in their portfolio value. Redemptions are staring in the face of mutual funds. Foreign investors have pulled out large chunks of money to cut their losses. God only knows what they have lost!

Markets today touched new lows. Valuations, experts say, are compelling but a meaninful rally still proves elusive. Patience, I suppose, is what is required. But no one know what the waiting period is going to be.

Behind every cloud there is a silver lining. Let’s not forget this wise maxim. In this moment of uncertainty, gloom and doom, bloodshed and mistrust the time has certainly come to make investments in equity markets albeit gradually and in small doses. For instance, if you have the money to buy 100 State Bank of India buy only 10. Buy another 10 if the price falls by 5 per cent from current levels. Similarly, if the price goes up by say 10 per cent from current levels, sell 50 per cent of what you have bought last. So, if you have bought say 50 SBI at current level and the price appreciates in a rally by 10 per cent, my advice is sell 25 shares immediately and book partial profits. This way you reduce your acquisition price by the absolute profit you’ve made.

I have been around in the markets for close to three decades now and the biggest lesson I have learnt from the current crisis. I can say that I’ve not seen a more severe depression. It is threatening to engulf our economy as well. We should be prepared to weather this storm. Here are my lessons for you to consider. These are hard to digest because they challenge conventional wisdom.

1. There are no blue chips. They change colours with time. See RED and start selling. If you see GREEN start buying.

2. You have to book profits at every major step or peak in a rally and shut out losses on the reverse. This way you keep your liquidity intact and are armed with the resources to capitalise on opportunities as and when they come your way.

3. Never overdiversify. The number of stocks you own should depend on the resources at your command. If you have say Rs 10 million, you may own 8-10 stocks for optimum results. If you have Rs 100 million, you could go up to 20 stocks. My logic is simple: you are the best fund manager. You can’t delegate responsibility for your fund management.

4.Dont put all your money in equity. It is DANGEROUS and SELF-DEFEATING. Check your portfolio for its performance over the last five years and you’ll understand what I mean. Remember, there are other options like gold, silver, real estate etc.