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CM Strategy

Sensex at 18K, My Current Momentum Trading Status

The Sensex broke the 18,000 mark today, and was up around a 1000 points from its lows. The Nifty broke 5300 and closed strongly too. The amazing thing? Apart from the many records this has broken, the markets closed up when the sentiment seemed to be negative at the start of the day.

It seemed like the 18K mark was not too far away (a comment I made on Sep 27 put the timeframe as two weeks from that date) but the momentum still looks strong enough to carry this much further.

So what’s the deal? Firstly, this is results season and either a) people are expecting good results or b) some people already know the results through some leaks and are pre-empting a buy. The third option c) is as follows.

FIIs have put in more than 1400 crores today as well. That’s a 2800 crore investment in two days. That’s a lot more money than they used to put in a month! So option c) is: FIIs have rated our market higher than we are willing to rate it.

Consider this: Reliance, which has had a dream move to 2600, is still trading at a forward P/E of 26. Granted, that’s one of the highest P/Es it has got, but it grows at more than 33% year-on-year! This quarter their revenues can be staggering considering increase in refining margins (is happening all over the globe), foreign currency gains (they have big foreign currency loans), acquisitions – one in africa and one in south east asia, and of course the IPCL merger. If we aren’t willing to pay at least growth P/E for this stock (i.e. P/E = EPS growth) are we really overvalued? You can do the same math for Bharti, NTPC, L&T etc.

China on the other hand gets a market P/E of 45. Given that we’re a similar economy, is 30 too high a P/E? That is a Sensex value of 24,000.

Note: I’m not saying that’s a target. What I’m saying is: What seems “overvalued” may suddenly seem to show value.

Overall, still a cautious mood out there, so the momentum will stay upwards. Tell me if any of you see signs of euphoria, of your cousins suddenly talking stocks to you or the TV anchors and analysts going really gung-ho about our “fantastic economy”.

Now for a step back. I’ve not yet published my trading diary (too lazy) but here’s the current status:

Kamat Hotels: At 202, gain of 30%. (Buy: 155)
Reliance: At 2600, gain of 30%.(Buy: 2000)
Suzlon Energy: At 1673, gain of 20%. (Buy: 1380)
Sintex: At 361, LOSS of 3% (Buy: 371)
Jai Corp: Bought today at 887.3 (No gain, no loss)
RIL Future: At 2600, Profit of 40% (buy:2421)
Nifty 5400 Call: At 110, profit of 40% (buy:67)

Closed Positions:
Marksans Pharma: LOSS of 12%, bought at 125, closed at 110.
Nifty Futures: Net traded profits of about 10%.
RIL Future: net booked loss of 0.1% (some up, some down)
RPL call: Loss of 18% (Options are very risky)
NIIT Tech: Net loss of 3%.

Overall, I’m up 10% from August 30, 2007. Which isn’t much because the Index is up nearly 19%! But I’ve had a lot of learning in the process, which I’ll mention in another post. Right now I’m moving to about a trade a day with a weekly outlook. It’s interesting!

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