Hi,

This quarter was a reality check for portfolios as well as for the confidence. It is very easy to welcome the first 20% of correction, difficult to digest the next 20% and more difficult to stay with any single percentage that the index drops thereafter. Many of you might be experiencing a bear market for the first time in your life. It is all good to read about the 1929 depression when the Dow fell 90% and did not revisit that level for two decades but such reading affects the mind and not the heart. There is no money involved. The real test of an investor’s make up comes when he starts losing capital at more then 50% from he was worth.

We are presently experiencing such a situation. Every call for a bottom has gone wrong (as it should) since a bottom is an event for the historian not for an investor for whom a bottom in the market is a process.

Somehow we are always concerned with what is the lowest level that the sensex can go. What if it goes to 10,000 but what matters is whether it would stay at 10,000 it could move to a very low level and investors do not lose as they choose not to transact at that level.

The loss of notional paper capital hurts but such pain has to be taken in after all stock markets also return back in the same way.

Another aspect that dogs the mind is to look at defensives stocks (supposedly) do not fall. Now ITC the best defensive cum growth stock in India is down some 25% from its peak so this market has no defensives the only defensive is cash where investors can feel the pain of a negative return with inflation but the negativity is restricted and fixed.

So the time to shift into the defensives was in the later part of last year before the bulls peaked out at this moment one should strive to look for solid growth companies growing at 30%-40% and available at a PE of 12-14 times (Market PE). Unfortunately the scramble for the HULs, ITCs and the Pharma majors seems to be happening a bit too late. Also investing returns should be calculated over long stretch of times. One cannot have different returns for bear and bull markets.

*# Stocks in maroon are from The Equity Desk XI.

Regards,

Basant

Least discussed stocks have topped the TED Report Card ! Also, the returns changes if some companies were initiated coverage earlier.