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Opinion

The Big Bang

…has happened? The Sensex crashed over 400 points after coming close to the elusive 18,000. Today’s cause for concern is political instability.

As I’ve said earlier, I believe the fall of this government is actually good for the stock markets. This will remove the Left from the government, and the Left is necessarily bad for stock markets.

Secondly, this will not slow down anything – no government policy not already in force is now an absolute necessity – if anything, they are hurting companies by introducing all sorts of ridiculous measures. For instance it is fiscal imprudence to try to curtail the rupee, and for that the government is willing to borrow 200,000 crore from the markets. That is higher than any other debt the country has today and we want to increase it for some stupid reason like keeping exports competitive – instead, isn’t it better for us to have a weaker dollar so we can acquire overseas? So we can get cheaper imports like computer parts, power equipment etc. which will make us develop faster? But the government is like an ostrich with its head in the sand; and if this government falls, it will only be a good thing.

Of course, markets will be irrational – there is likely to be a big fall when the government finally collapses. But that will be stupid because everyone knows and has expected this for a while.

The only conclusion from that is that the market is looking for a reason to fall. Not that the market has a life of its own – it does not, it’s just a sum total of sentiment – but the overall sentiment seems to be like this: I will sell at the first sign of weakness.

Yet, foreign investors are buying. They bought 1400+ cr. on Monday which is about 400 million dollars, a fairly large sum for buying in a day here.

What will I do? I think this is a temporary blip so I’m staying long. Of course I may flip anytime, because things change too suddenly in the market. Don’t go by rumours right now. I’ve exited almost all my small and mid cap positions that retreated to my stop losses, and I have positions in the Nifty and RIL. (Still holding Kamat Hotels, Suzlon Energy and a new entry, Sintex). Have exited Bartronics, NIIT Tech, Marksans Pharma etc.

Let’s see how this week pans out. It will be interesting to see if there is a really large fall, as the first round of results (Infosys) comes in on Thursday and there’s a Reliance board meeting on Friday. Very very interesting week.

  • Anonymous says:

    >For a change I am in total disagreement with you Deepak. I have taken a detailed look into my portfolio of funds and stocks. As for funds, I have a feeling to let the fund manager take the call. For individual stocks, I find no reason to panic — I seem to have a _safe_ portfolio and selling at this juncture is silly. Here’s my portfolio for your immediate consideration. To keep matters simple, I am just giving the projected earnings for this year and the CMP. Information is sourced from businessweek, moneycontrol and economic times. I want you to make a comment here on my decision:
    1. Indian Bank, estimated EPS 22, CMP 144
    2. Deccan Cement, estimated EPS 45, CMP 250
    3. Bharat Bijlee, estimated EPS 140
    4. Omaxe, estimated EPS 30, CMP 300
    5. Fortis Healthcare i bought @84 and want to hold for 5 years, seems to be a growth stock.

    Given this situation, you tell me just ’cause this moron of a govt. is going should I cash out? All EPS estimates are FY07-08. At best I would look into quarterly numbers and then make a call. What say?

  • Anonymous says:

    >Market is moving too fast too soon Deepak. Time to withdraw or just sit tight and enjoy the ride? You were definitely correct when you said that markets are likely to move fast. CLSA now says interim target for Sensex is 19.5k. At the current rate, even 25k looks possible. But are the valuations sustainable? I have my retirement money riding in mutual funds, just wondering if I should book some profits. Retirement still is a long time away.

  • Deepak Shenoy says:

    >Sorry, I think I conveyed the wrong impression. I don’t think the big bang is here – that was a question I asked.

    As I said I’ve been long and made an absolute killing today. It was going against the grain (everyone thought there will be a drop today). But the deal is: there is sentiment which can go either way. Certain stocks have no reason to be where they are but they still move higher – I can’t predict why, but I can definitely say that I will participate in the move.

    Similarly if there is a downside, there is no reason why (reasons are attributed later) but the move can make you money if you are on the short side of the market.

    What I wanted to say really was – don’t predict, react. There may be moves that don’t make sense, and the only thing you can control is how you react to a move.

    Indian bank and Deccan Cement are good buys at this price. Bharat Bijlee is a great momentum play and has some serious fundamentals also. Omaxe may be a one time profit, check out the resutls this time and see if that is so. Fortis I don’t particularly like but then that doesn’t mean much; I would wait to see it grow.

    I don’t think you should exit because of hte government. What I was trying to say was: that if the reason for the fall is the government falling then you should buy. Other reasons (slowing economic growth, margin pressure for exporters, high P/Es of certain companies etc.) are perhaps more valid – but then there is always a reason needed to fall….

  • Deepak Shenoy says:

    >anon: I would still enjoy the ride. Remember that the madness has just begun, but it could turn into euphoria anytime soon. The turnaround will be obvious, when everyone and his uncle start trading shares. That’s when you should get out. It could happen at 19,000 or 25,000 but if you get out now you may miss a big part of hte move.

    Remember China’s markets are valued at P/Es of 40+, why can’t we?

  • Anonymous says:

    >Thanks for analyzing my portfolio Deepak. I think I have begun to understand you a bit, you are trying to say and I quote “spot the trend early, ride it till it reverses or there are signs of the reversal and exit”. A classic trader’s point of view. On the trend spotting bit, where do you stand? Are you following certain specific stocks or sectors — clearly logic is no more the underpinning so how do you sift through 1000s of stock ideas? Some trends are fairly obvious, buy anything that has anything to do with Reliance in any form. But I am sure there are other trends as well. Moneyoga, eh? 🙂 List me in as a client.

  • suresh says:

    >”but the overall sentiment seems to be like this: I will sell at the first sign of weakness.”

    On Monday when the sensex fell more than 500 points, I smelled weakness and booked profits in PGCIL. talk about timing 🙁

    I’m a new investor and trying to avoid looking at intraday charts. but emotion wins sometimes.

    I finally decided to sit on cash till that *crash* finally happens. But as you said everyone thinks it will happen and hence it may never happen 🙂

    Cheers
    Suresh

  • Deepak Shenoy says:

    >Anon: True, this is more a trader’s market though. Actually it’s ALWAYS a trader’s market. I think the difference between trading and investing is very thin; you can be a trader with a five year perspective.

    Overall, buy and hold does not work for the long run. Just because we’ve had a great bull market in the last few years does not mean that we’ll continue to do so – we could fall and stay fallen for more than five years. If one subscribes to that, it may be prudent to understand when to exit – it doesn’t need to be at the very peak, it can be 10% off the peak and still be good.

    Suresh: don’t worry, this is how you will learn. in fact this time sit on cash till you see an opportunity.

    The funda is: There will be opportunities that are so obvious you will be wondering why no one is taking them, and those are the ones you can take. Such stocks may come once a month or once a year – when they do, grab them! That’s also a good strategy.