Its been a long bumpy ride from 8000 to 12,000. Every street corner looked like a cross road and the TV anchor seemed the perfect weather man who told us about the rains only when it started drizzling and about the heat just as we were taking our jackets off. Well, stock markets are all about that. They will make the consensus go wrong each time. For everyone cannot be rich at the same time.
The fundamental guys have started talking about charts! Did one ever hear the guys who looked at Balance Sheets suggest that we should buy only if the sensex breaks over 12,700 but yes, times have changed and in these changing times it takes a lot for the human mind to change. The emotional self within is still thinking of how everyone else got it wrong and that the guys who are lapping it up at 12,000 have no clue that the world�s biggest democracy goes beyond the polls into the results next Saturday.
The ones who have bought are busy thinking of exiting and the ones who are on cash are expecting the markets to fall before they buy. Someone argued that it makes little sense to buy at such valuations but did it make sense at 8000. It did but at that time the street was busy preserving powder for 6,000.
My firm belief is if we retrace back to 8,000 (a weird hypothetical thought) no one would buy because at every index level we will like to buy it lower and the only way to get in the suckers is for this rally to extend beyond 12,000. The left out feeling will create panic buying because markets do not oblige timers they oblige the people who are prepared to spend time with them.
While elections are a big issue for the news channels just think whether anyone else coming to power will affect you in your trade or industry. Suppose you are running a branded garments shop in a busy street center would you actually close down the shop if Mayawati becomes the Prime Minister? Additionally would you say to yourself that I would re-open this shop only if one of the two big parties heads the country?
True there will be severe volatility if the results are fractured to the core but in one quarter we will get along with life. The mornings would re-start with the Nikkei and the evenings would again end with the Dow but as investors we should welcome events that allow us to participate again in this great long term story called
Sometime the news channels do a lot of justice to us. They harp on the negative news so much and so fast that it gets discounted to the core and then the markets say ok let�s see ahead. If most of the MFs are still in 30% cash and we get a severely fractured mandate would you bet for any of these MFs to go 60% cash from the 30% that they are already holding. I do not think so.
So the need of the hour is to take a slightly longer term view with the money that we need and then move along because passive index investing has returned a 20% CAGR over the past 30 years. I doubt if any market timer (leave alone stock picker) would have fared any better then that.
So unless you are a hedge fund manager or a MF guy trying to avoid that short term blip it would pay to remain invested if like me you cannot time in the entries and exits. But if you can then there is nothing like it!
As I said I do not know where we are headed but I surely understand that the market will not oblige the consensus. Its time to buy some small and mid cap companies which are segment/sector leaders trading at 6 to 8 times trailing PEs; 4%-5% dividend yield and Return ratios of 35% and above; free cash flow and with cash on Balance Sheet. Of course these small and midcaps should constitute one part of the portfolio the other part being made up of secular long term stories where you have a 3- 5 year view. Everything else should follow.
Maybe the volatility in the next few weeks will provide such opportunities let�s see!
well said.
Difficult to make a decision.
Last time, everyone was expecting that BJP will come back to power. But when Cong (I) became the largest party, market tanked.
Now everyone is expecting ( as per the initial trend/estimate) that neither BJP nor Congress will be able to form the Government with the present allies. So again if Left is involved in the Govt.formation then there are chances that they will also participate in the Govt. Then reforms have to be delayed by some more years.
So many iffs and butts, but may be it is better to cash out from the stock which are not expected to post good results for the next two quarters.
Any other ideassss???
I was little pessimistic but body language of poltitians says that nda is going to form govt. so mkt is going to up.
From the Informed Investor @ google
11 May 2009
Asian Daily
India Market Strategy----------------------------------Maintain OVERWEIGHT
How to read the election results this weekend for their market implications
Nilesh Jasani / Research Analyst / 91 22 6777 3720 / [email protected]
Arya Sen / Research Analyst / 91 22 6777 3807 / [email protected]
● We write a simple note on how to read the election results coming
out this Saturday and their implications on the market.
● The best case with a negligible chance is a scenario where the
leading coalition gets over 200 seats. This would be expected to
cause the markets to soar immediately and would be good longer
term too.
● The worst is the scenario where both leading coalitions have less
than 160 seats. Bad for equities in the short and long term.
● In the base case, at least one of the coalitions will have between
160 and 200 seats. If the difference between the two coalitions is
more than 25 seats, the market would likely perceive the results
conclusive and take it positively. If not, the process could be
chaotic. Either way, uncertainties could remain high in the market
based on the course the coalition formation process takes.
● For those completely uninitiated, we summarise the important
terms � like what these leading coalitions are, etc. � and numbers
that could prove handy. Next week is likely to involve historic
events for the nation and could cause large moves in the market.
Simplifying the results this weekend
By now, most India investors agree that the election results that are
coming out this Saturday could substantially impact the market not just
in the long but also in the near term. The clamour around the result
days should be deafening as all argumentative and non-argumentative
Indians will have their spin. But, we recommend investors to keep
things simple to benefit from the likely high volatility in the initial trading
days next week.
We urge readers who closely follow politics to skip to the next heading,
as we explain basic facts that they must be well aware of to start with.
Indian citizens are electing 543 Parliamentarians, who, in turn, will
decide the government once elected. On this Saturday, 16 May � likely
by afternoon India time � the result should be out in terms of who these
leaders are and, more importantly, which parties they belong to.
Prior to this, once the last stage of the election is over, exit poll results
will come out this Wednesday (13 May) evening India time. In the past,
exit polls have proven misleading and there is likely to be a heavy dose
of scepticism about their conclusions in the equity market.
Continuing with the basic facts, the current ruling party Congress has
an alliance that goes with the initials UPA, while its chief opponent, the
BJP, has an alliance that goes by NDA. In simple scheme of things that
we paint below, investors can afford to ignore most other nuances
except the eventual role played by BSP, a regional party led by Ms
Mayawati, and also a group of Left parties led by the CPM.
President of India Pratibha Patil will decide on the order in which to call
various parties to form the government; her role will be critical in raising
or curbing market volatility in the coming weeks if the result is close.
Numbers that will lift the market and those that will depress
The best case: For a majority, the winning coalition would need 272
seats, but this number is likely to be attained only through post-election
coalitions that might take weeks. However, if either of the coalitions
gets over 200 seats directly this Saturday, the equity market could soar
immediately � this would be deemed as a resounding victory. The
winner could be called to form the government immediately while the
second coalition may equally quickly accept defeat. The Prime Minister
could be known (although the swearing in ceremony will be later) before
the markets open next Monday. The coalition building process will
continue, but the market could begin to ponder the likely Finance
Minister and upcoming budget. Ideally, the leading party of the winning
coalition � the Congress or the BJP � should have 160-plus seats of its
own. We deem the chances of this scenario negligible. If this scenario
were to happen, the exit polls too should show early signs day after
tomorrow.
The worst case: If both the coalitions get less than 160, the
government formation would be chaotic. In this scenario, both leading
parties would have fewer than 140 seats. This would not only raise the
chances of a third-front government, but also need a long time for
things to settle. As it happened in 1996, there would also be the
possibility of the party forming the government first failing in a few
weeks� time.
The process would turn more chaotic if the leading party winner order is
different from the coalition tally order (if Congress has fewer seats than
the BJP but its coalition UPA has higher seats than NDA or vice versa).
We deem the likelihood of both the coalitions obtaining less than 160
about one in four. If this scenario comes to a pass, we expect the
market to have a substantial downside right from the beginning.
The base case � mind the gap: In the base case where at least one of
the coalitions has between 160 and 200 seats, the most critical thing
would be the margin of victory. Ideally, one of the coalitions should be
ahead of the second by 25 seats in which case the market may
perceive it as a reasonably conclusive result to begin with.
With a reasonable gap and with the leading party having over 140 seats,
the Prime Minister could be sworn in quickly � giving some comfort to
the market. However, the details of who joins the coalition, their terms
and who is made in charge of the finance and other important economic
posts could still cause some volatility for the following few weeks.
Overall, this could be relatively good for the market in the medium term.
If the gap is small, which is equally likely, the terms extracted by the
new partners could be severe and become critically important for the
market. For example, if the gap is small, the role played by the Left
parties or Ms Mayawati�s party could involve steps that investors may
have problems absorbing. The negotiation process could raise the risk
of the government being weak, fiscal deficit going out of control and/or
sovereign rating downgrades. Investors should exercise caution if both
the coalitions appear to have a shot at forming the government.
As they say, the only thing predictable in such events is the
unpredictability. We recommend India investors to clear their calendars
as much as possible this weekend.
And this is going around:
May 18 2004, reacting to election results , markets opened down circuit of 10%. Next Monday May 18,2009?
Its time to buy some small and mid cap companies which are segment/sector leaders trading at 6 to 8 times trailing PEs; 4%-5% dividend yield and Return ratios of 35% and above; free cash flow and with cash on Balance Sheet.
Very well said Basantjee, Nice blog .. Keep up the good work. Cheers, Sandy Visit me at http://www.mygr8blog.com
Do we are thinking much abt bull run. We were without left 8-9 month but no decision on reforms by upa. Can they do now?? They were appreceiating indira gandhi for nationalisation of banks so we could resist current recession. Can they go ahead with reforms?
Posted on:5/7/2009 7:07:07 AMadamani
Well after going through whatever has been happening and whatever I have been listening, we are just unable to land up in any conclusion. We are human beings full of greed,when we see others making money, we regret that why I am not there making it too and when others are loosing , we thank ourselves we are not there and when we start loosing money we always try to blame it on others,may be to apersonor generally stock market.
First and foremost is lets get think straight in our own mind as to how we individually look at stock market and what are your expectations from it. That comprises your age,capital etc.Now if you are a long term player be invested no matter what the situaltion is, all you need to make sure is your picks and the market will pay you if not today then tomorrow.
Lets not confuse ourselves,keep things simple as much as possible.If you believe that this is a temporary glip be invested completely if you are a high risk taker,(the chances are you will make more or loose more,) if you are a mediocure risk taker like me, be half invested but select your companies cautiously,mke it a mix of your own conviction and also of some leaders whom you believe in,keep a balanced approach and you will play it safe(decent returns as you have time.always remember slow and steady wins the race with ethics)and if you dont believe in risk taking ,stay out.No one knows where the world is heading.Its everyone's guess but I storongly believe that this is the decade of asia and I am here for the next 15years so I dont want to make any foolish decission today that I will have to repent later .Choose your stocks with care and stay half invested and let the world talk what they want to.