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Restarting SoS: ICICIBank, HDFC, RelInfra, Nifty

I’m restarting the Short Only Strategy. After a pretty good bull run, there seems to be some weakness. I think I may be too early; this of course has no money involved (it’s “virtual”) so I would not recommend that anyone try this at home without protective equipment.

Going short, virtually, on Nifty. It’s showing the sort of weakness I haven’t seen for a while – and world markets are softening too.

HDFC – it’s raising 4000 cr. using bonds, and I think the current valuation is rich. A 25-30 P/E for a finance co. sounds high – and it has the highest price to book in the pack. There is no solvency issue – it’s a valuation problem.

That applies to ICICI Bank too – at a 20 odd P/E and a literally flat EPS for the last two years, it needs to show enormous growth just to stay there. It has shown signs of “trading income” based growth in the 1st quarter, but the main businesses of advances and fees declined – so, valuations being high, and the technicals showing a breakdown, it’s time to short.

Lastly, Reliance Infra. Again a little rich in valuation considering anything new and good will go to Reliance Power. They may eventually absorb Rel Power – like RIL did to RPL – but till such time I’m suspicious of paying this much for a utility business.

Everything’s on with a 15% stop loss – must exit if it rallies back that much. And are there reasons for a rally? Of course – we have the great statistical recovery going on and money’s sloshing around equity markets, so a rally cannot be ruled out. And if there’s price inflation – something that is traditionally good in the short term for stocks – there is likely to be upward revisions in stocks too.

(Current Status)

Note: No current personal positions matching the above. And this is not advice. This is not anything for the folks that get really anal about this kind of post. I am not a financial advisor. And in case you think I might be right – I’ve just been terribly wrong in this post – I thought the market would rise (before it fell) but it gave me no ijjat.

  • indian says:

    >hi deepak, again I think timing of sos is not right. You should wait for absolute euphoria to set in before building shorts. I feel nifty will leap close to 5000 levels by next month. Lets see how sos fares this time.

  • Mutual Funds says:

    >Well it is a tough situation to decide on where to invest. Ittttttt is a wait and watch situation.

  • Anonymous says:

    >Anal :).

    I am the dude from NHPC IPO thread from the looks of adani IPO, it looks like maybe you could prove right about that one.

    I can't really understand one thing though why market is ignoring weak monsoon.?

  • Deepak Shenoy says:

    >Anon: No, no don't get me wrong – NHPC may be a great trade and in the short term there is simply no reason to not trade NHPC.

    It only makes a difference to the longer term when you look at fundamentals.

    Yes, the markets are being a little overjoyous, but everything eventually comes around. Gotta stay unlevered!