Imagine you’re aboard a Plane in Flight and hit turbulence…the Plane drops altitude…sometimes very sudden…..Sensex is akin to this situation…dropping 2.1% on Jan 21 and then near 3% today…Suddenly from reaching up for 18000 recently it is now poised to dive below 16000!…It closed at 16290 today…..and those who were proclaiming glory are quickly reversing opinions to predict a sharper fall ahead…some even to 12000 !…Remember the Nursey Rhyme “Ring a Ring a Roses….Pocket full of ……Hush ah Bush ah we all fall Down !…you gonna hold hands with those who are singing this,you will fall down !

Despite continuing World Economic and Political Turbulence, and intense FII selling past few days,Indian Equities remains in the best position to move up…20-X is going to see  a Sensex range that could extend down to 14000,maybe 13000, and up to 20000…so we are at 16000 right now…we are not going to test 8000 again,like we did in March 2009 and October 2008…so macro situations and large caps trends are going to be harder to read in 2010….It’s a bottom up low and mid cap approach that’s going to get you the Winners in 2010….So playing the Sensex or the Nifty or the Large Caps,either in Cash or Derivatives may cause you tense moments…like today

Concentrate and Focus on Specific Stocks in the Low and Mid Cap Range…..Most of Our Clients Portfolios over Rs Ten Lakhs are in 25% Cash at this time….New Clients have been advised to hold Cash and not be in any hurry to invest…..and at any given time we have @ 15 stock selections…..portfolios have from 3 to 10 scrips from this selection……one scrip was on upper circuit this morning and we reckon atleast three of our selections would be clear and minimum money doublers in 2010  

So we enjoy such falls in the Markets….gives us opportunities at lower prices

But if you’re a die hard macro and large cap player because of high volumes and liquidity,then do a simple exercise…Make a list of your Top Ten Sensex Scrips from the 30….Rewind to 2009 when the Sensex was 13000 and 14000 and 15000 and record what were the prices of these Ten scrips at those levels……will give you some sense of where these scrips can yet correct to !…and save you the agony of jumping in impulsively

Cheers !

Human memory is very Short…..In November 2008, one of India’s leading Investment and Merchant Banking and Broking Outfit strongly advised it’s clients to sell off their whole Equity Portfolio…I had blogged it too as it was extreme advice from a Leader..rare in itself

http://www.gauravblog.com/?p=360

• A Rare Technical Report from a leading Securities Entity has studied the Sensex trends for the last 30 years and made a call that the Sensex shows weakness as it has breached earlier in 2008 a five year support line and in early October has breached the 50 months average….Sensex has now entered a structural bear market….It will fall to a range of 5720-6750,eventually finding support in the range 6150-7150…Pull Back Rally can first take it to 11500 before it resumes the fall again…This is their BOLD STRATEGY recommended

               Only Trade and do not Invest

                         Do not average purchases

                                  Aggressively Sell off Portfolio

                                         Short the Market at Higher Sensex Levels

                                                Trade Long on further 10%-20% upside with Strict StopLoss

Since then the Sensex sought a low of 8000 again in early March 2009 and then has simply doubled inside six months…It never dived below 7000 and 6000…so there was no finding support and stabilising at levels of 6150-7150

If you had followed this extreme advice,you’d have booked all your losses and never had an opportunity through an equity portfolio to recoup the loss…quicker by averaging purchases…..worse you could have shorted a rising market and hit by a double whammy !…At 8000 you were seeking a further fall to bottom of 20% which never happened and you missed the 100% run

But Human Memory is very Short….This Entity is now ‘revisting it’s assumptions’ but it retains leadership position in the Investment and Merchant Banking Field and continues influencing many Investors…While flexing it’s Money Muscle it needs to flex it’s Mind Muscles too,especially before offering such extreme advice !

It’s your Monies at Stake…Think Rationally…Don’t Follow Advice Blindly…particularly extreme advice 

Honestly,I too was bearish at the time but held back such extreme advice because,as I told clients,once you sell all,you’ll never buy again for a long time !…and the markets after seeking bottoms will recover…such bottoms are great buying and averaging opportunities…Clients were pressing to adopt a strategy to sell and buyback on lower bottoms and I was holding them back saying what if your bottom never comes  and the market recovers !…This is exactly what has happened 

Clearly One should have averaged purchases and not have Sold or Shorted…clearly this was contrary to the extreme advice given by this Financial Powerhouse

So it’s finally Out…it’s a drought…the short term Monsoon,rather the lack of it, trigger begins to impact the Sensex….I had warned about this on June 24,2009……Click on

 Monsoon Fears fuel Sensex Fears

Liquidity and Momentum and Pacifying,Assertive and Assuring Government and Experts Voices in India and overseas had kept our Sensex on track for new recent highs…Irrational…given the fact that Markets had run ahead of Fundamentals yet again and the Monsoon factor had been ignored

It’s been an amusing few weeks….signal to noise ratio from the Channels continue to emanate static…..when the Markets kept rising,experts began sprouting out of the media woodwork,boldly justifying it…when they fell,they are justifying this too !

Be warned…when Investment and Merchant Bankers become really active…it’s sucker time again ! 

Valuations be damned !….Go for the Hype…suckers…Go for the IPOs…suckers….wanna bet Mahindra Holidays will go below Rs 300,it’s issue price ?…it’s 330 right now !…and wanna bet NHPC too will be available below it’s IPO Price of Rs 36 shortly after it gets listed !?

Get Real

China was down 5% today….This was the trigger…..Sensex,following cue, has crashed 640 points to 14772 as we near closing today

Get Stock Specific with critical weightage to both,relative and absolute Valuations…you’ll be safe…don’t panic that one short term factor of a  bad monsoon can destroy your long term portfolio..Lucrative returns continue to beckon in the long term

Now you know why I’ve not been in any hurry to buy in !..To be forced to make Long Term Play decisions in the Immediate Term,so as to not miss fast upmoves, is a sure recipe for expensive buying ….haven’t we all learned that before !?

As I blogged on August 4,2009 that I was not comfortable at Sensex of 16000…it had run up too fast…18 times Current Year Earnings…it needed to correct to 13000 to sustain a healthier move forward with a three year outlook…In this context,I’m comfortable now with this correction…Hope it continues…It would provide cheaper buying opportunities..New Clients should be happy to be in cash as we delayed creating New Portfolios

Cheers ! 

Sigh !…..”I should have got in at 8000 and 9000 and 10000 !” in March and April,just a few months ago !”

This is the refrain of most with the Sensex doubling to 16000 in just five months !…one of the quickest rises in the history of the Sensex

Most lost a great chance of averaging portfolio holdings…Both,no Cash and no Conviction in most cases…My Clients hold  Sesa Goa…..some from pre 2007/8 at lower holding costs,but many having purchased  it in 2008 cum bonus and cum split at Rs 165-Rs 175 levels……It dropped to 60 and is now up 300% to Rs 240 !

There are several such scrips…good companies,some that were available below book values in March 2009 and which also have strong visible earnings….additional funds deployed in Equity would have worked wonders for the Portfolio

Now at 16000,Sensex is 18,16 and 14/15 times FY 10,11 and 12 Expected Earnings respectively….This may look expensive,considering it had dropped to 10 times a few months ago

But we have support coming in from Foreign Fund Managers…higher risk appetite for India…over US $ 7 Biilion already brought in by FIIs this year…considering a US $ 3 Biilion reversal in Jan-March 2009,that’s over US $ 10 Billion got in since April 2009

We are now yet again talking like we did in 2007…India deserves a higher PE Multiple rating on the back of a strong Earnings Upgrade for the next three years

The Message is clear…If the Sensex corrects to 13000/14000 levels,like it must for a healthier move forward,it should be a buying opportunity with a three year outlook

Because mathematically on a macro valuation if we witness a Sensex Earnings CAGR of 15% for the next three years then the FY 12 Sensex EPS would cross 1300…at 18 multiple that’s a record Sensex level of 23500 levels by 2011/12…Even if we dilute the Earnings CAGR to 10% we get an EPS level of Rs 1150…at 18 multiples that’s a Sensex level of 20700

Now a 50% Sensex upward move inside three years may pale in comparison with the 100% it has achieved inside five months this year !…but look at it in two ways

• Equity should give you double the Gains that a Bank’s Fixed Deposit would give you in three years ,even if you consider only the Sensex potential
• You could make strong alpha returns,when your portfolio,based on astute stock selection and weightage,outperforms significantly the Sensex benchmark

Think Three Years for the Potential for Three Digit Percentage Returns in your Equity Portfolio

And if you’re looking for Stock Select Ideas and Portfolio Creating or Restructuring do consider Joining our Equity Advisory Plans

 Cheers !    

This is what I had blogged on October 27,2008

Some Pundits called Sensex of 12000 irrational…some saw irrationality at 10000…So what would they call 7500 ! ? …Begin to slide in now

We saw the Sensex again collapse to 8000 levels in March 2009 after reviving from October end 2008 lows…Then we had the Elections and the Budget and Sensex has crossed 15000 on good momentum….Just be cautious at these levels of 15500….It’s now at an 18 Multiple on FY 10 Sensex EPS…Market ,driven by Liquidity,is yet again living up to it’s reputation of displaying extremes…now it’s beginning to look like exuberance on future growth prospects and the feeling that the worst is behind us….Buoyed by encouraging Q1 FY 10 results so far,the Markets seem to have begun to run a trifle ahead of Fundamentals…that’s what I sense and how I feel….Expect Volatility…Be very Stock Selective  

And Kumar,you seem to be following me like a Watchdog !…I hope you don’t become a Bloodhound ! Yes,my above Blog on October 27,2008 had said look at these Prices,IFCI at Rs 15/16 and  Sicagen at Rs 4/5…You have queried on Sicagen as I don’t feature it in yesterday’s blog on portfolio performance….You must have picked it up from my October 27,2008 Blog ! To answer your query in your response to yesterday’s portfolio performance blog,No I am no longer recommending Sicagen…It’s at Rs 8 today…Anyway such scrips have limited portfolio exposures.For your other request to elborate on Damania Group,I suggest you use the search feature on my blog,typing out ‘Damania,Core Project,Damania Capital Market,Damania Airlines,Damania Pharma or Agritech Hatcheries’…you’ll get some sense of my animosity towards this Group

And Nitin…a paid Blog !?…Nah! would defeat the purpose of this Blog…but you could get in touch with me at gaurav@scriptechgroup.com or gaurav@scriptechindia.com and I’ll tell you how you can access our Investment Ideas when we make them…For that matter,anyone out there who is genuinely interested too, can do so…We need to know your Needs and Profile,before we can suggest which of our Personal Annual Advisory Plans would suit you.They begin at Rs 25000 a year and go up to Rs One lakh a year for Retail Investors and there is personal interaction with me,often proactive…We have yet to launch our cheaper Value Based Web Advisory Plans,but where there will be no personal interaction with me  

Cheers !

Minister of State for Science & Technology,Mr Prithviraj Chavan,just announced the second Forecast for this years Monsoon…the Picture is not good

• The First Forecast in April had predicted 96 % of Normal Long Term Average Rainfall….This Second Forecast lowers this to 93%  
• It’s the El Nino effect now playing with our Monsoons
• North-West India will get only 81% of Normal Rainfall
• Southern Peninsula will get 93% of the Normal Rainfall
• Central India will get 99% of Normal Rainfall

These projections are based on sophisticated statistical models and based on Input from Indian and International Monitoring Outfits and the Minister says he is confident of the accuracy of this forecast 

The Economic Implications will be announced by the Agricultural Ministry and other concerned Ministries later on…..Serious Worries are now arising on possibilities of Drought Conditions in certain Areas of India…This will seriously dent the Purchasing Power of Rural India

There is already a escalating crisis on Water Shortage in many States with delayed Monsoons…We are in the last week of June and the rains have just about hit Mumbai and are yet to hit Delhi

65% of the Kharif Crop depends on Monsoons,rather than irrigation….so expect prices of agricultural commodities to move northwards as production falls short….For example,the Ministry of Agriculture has already announced that in FY 10 the Sugar Production will be @17 million tonnes…and because of delayed monsoons,sugarcane would be diverted towards fodder and jaggery

Montek Singh Ahluwalia tells us that Finance Minister,Pranab Mukherjee’s Union Budget on July 6,2009 will be a popular one

Should really be interesting to see how !…given the backdrop of a High Fiscal Deficit,continuing Global Crisis,Declining Exports,Price Volatility in Currencies and Commodities and now a significantly below normal Monsoon forecast for this year !

In FY 09,it was Agricultural Growth that propped up GDP Growth with Manufacturing floundering…In FY 10, we should see both these sectors struggling now…and don’t expect the Services Sector to save the Show  

So for the Union Budget to be popular,it has to be really spectacular…for all…Intent may be there but the circumstances will constraint the ability

So what should we expect from this Budget ?…..Export Sops,Infrastructure Boost,Specific Solutions for Capital Formation,Direct and Indirect Tax Reliefs and Rebates for Individuals and all Business Entities,Disinvestment in specific PSUs and other major reforms……   

Sensex is holding on to +14000 levels pre-budget in expectations of the Budget and continuing high FII Inflows…but ‘El Nino’ is holding our Monsoons to ransom….and thus by consequence even our FM !

Sensex is walking a tightrope in the short term…if you are not convinced to reduce exposure to stocks or reduce trading activities,atleast delay further buying for a fortnight till after a post budget review…and hedging your holdings would not be a bad idea at all too !…An aggresive strategy would be to go short…but be warned you’re up against liquidity and momentum here…sensible to hedge and wait out the variables

Sensex gained a sensational 2000 Points overnight when Congress got a sensational clear mandate in the General Elections…But their Union Budget may not repeat such a rise overnight…Though Markets are living in Hope that it will !

July and August are critical as 76% of the rains occur in these two months with June and September accounting for the remaining 24%…so there is more risk of a downside staring at us in the short term with this Worrying Monsoon Forecast….a strong chance that the Sensex will slide below 12000 again on Poor Monsoons given the fact that even at 14000 levels currently the Sensex is at 16 times both past FY09 and projected flat FY 10 earnings…not exactly cheap……Poor Monsoons will impact Earnings and Impacted Earnings will affect the Sensex

This Poor Monsoons Forecasting today has influenced this Forewarning 

Just perused the Model Equity Portfolio for India that Reliance Equities International has launched.It’s been authored by their Head of Research

Excited to know what’s in it ! ?…more  so after I tell you that the Report is titled ‘Boom and Bust’ with the tagline ‘Resistance is Futile’ !?

Turned out to be a Dampener really…no Originality at all ! …very unReliance like ! if I can say so !

The Portfolio has got 36 scrips chosen with the following criteria

• The benchmark is the Sensex
• No one scrip should weigh more than 10% of the Portfolio
• Those scrips that weigh individually more than 5% of the portfolio should not collectively weigh more than 40% of the Portfolio
• Liquidity in the Scrip must be there and the threshold is an average weekly trading volume of 4 lakh shares in the scrip
• Sector Allocation done on basis of current view which is Overweight on Energy,Materials,Consumer Discretionary and Healthcare and Underweight on Consumer Staples,Telecommunication and Utilities and Marketweight on Industrials,Information Technology and Financials 

These are my views on this Model Portfolio…I find the Investment Approach too Passive and Defensive and this is probably because the Thinking is UnDynamic…and even flawed…unless the objective is to only mirror the benchmark Sensex    

• It’s got 28 Sensex Scrips out of the 30 possible….They do not like Ranbaxy and NTPC…So there are just 8 stocks in this Portfolio that are not part of the Sensex…These 8 stocks constitute 14% of the Portfolio with Cairn having a 4% weightage,three others with 2% each and the rest four with 1% each weightage
• Top 5 Scrips have an aggregate 40 % weightage…Reliance Industries (10%),ICICI Bank (9%),ONGC and Larsen (8% each) and Infosys (5%)…this leaves it no room,as per it’s selection criteria, to buy into or increase weightage to over 5% in any other scrip,unless it reduces weightages in these Top 5 Scrips 
• The Portfolio virtually mirrors the Sensex and thus should have a Beta of 1…It thus will move more or less the same proportion as the Sensex will…..Might as well have brought the Sensex itself !…It’s clearly a Defensive Approach and  the Strategy can be termed as Passive Investment and therefore the Thinking is clearly flawed….This Portfolio will never beat the Sensex !…even if it does,it would not be by any significant percentage as the 8 Non Sensex Scrips in it have just a 14% weightage….. so what’s the point of Benchmarking !
• Even the Portfolio Sectoral Allocation more or less mirrors the Sensex Sectoral Allocation…even for the Overweights of Energy,Materials and Consumer Discretionary,the extra weightage in the Portfolio is insignificant from 1.3% to 3.4%
• This June 12,2009 Report on Portfolio Strategy states the Benchmark is the Sensex but it fails to Show the Sensex level in the Portfolio…so it becomes easy to relate perfromance…I’m assuming they have taken the Closing Sensex of 15238 on Friday,June 12,2009 as the starting benchmark
• The Report is titled ‘Boom and Bust’ with a tagline ‘Resistance is Futile’….I find this a bit too dramatic a Title with little corelation to this Model Portfolio launch,even after considering that they are positive about India’s Prospects  

Reliance Equities International sees an upside of 15%-30% upside from here in the next six months…18000 Sensex by December 2009…in the range of 16500-19000 definitely…ofcourse the risks have been spelt out

This target is based on FY 11 EPS growth of 17%-22% and a PE Multiple range of 17-19…that’s a Trailing PE of 22 on FY 09 EPS

The Current Sensex Level of 15238 (12/6/2009 closing) is 15.5 times of Projected FY 11 EPS 

So if this upside does happen,the Model Portfolio too will surge proportionately…the problem is that it will be a perfect proportion…so you will not be able to beat the benchmark…so as I stated earlier too, and I reiterate,might as well have just observed a Passive Investment Strategy and Invested in Units of the any Sensex  based Fund….because you’re not really going to be rewarded for any specific equity premium more than the market…. you’ll get what the market gets !…because the beta is One for this model portfolio

Building up your Portfolio on a specific scrip and bottoms up approach with more weightage of Non Sensex Scrips would have given the Portfolio a better thrust,without any significant compromise on Risk Taken…I’m not suggesting you chase Alphas…but atleast give your Portfolio a Chance to beat the Benchmark !

Cheers !

Be forewarned !…A June Jolt in the Dow of 20% + is being predicted by many market pundits…That means testing it’s earlier Lows…..In this event,decoupled or not,our Sensex too would drop to 12000 and below…pre election results Mid May levels 

Bulls be cautious !

At 11.55 am,The BSE and NSE reopened after a two hour cooling period after hitting circuits on opening at 9.55 am

I’m not even in Mumbai…in Ahmedabad and feeling the Heat in more ways than One !

At 11.55 am the Sensex hit it’s second Upper Circuit at 14272.63,up 2099.21 points from Friday’s closing….up 17.24%

The Nifty hit 4308.05,up 636.40 from Friday…up 17.33%

As is the Policy ,the Markets have been now halted for Trading for the Day…This is unprecedented in our Market History

In seconds the Volumes had hit Rs 3000 crs…..My Heart goes out to all of those who had shorted the Nifty or  stocks in Futures…They have not yet been able to cover and are facing massive losses and therefore serious margin issues…They may need to sell part of their portfolios to pay off brokers…Short Sellers have been Shorted !..and How !

Tomorrow Sell at these Strong Sensex Levels….15000 +?…so quick…so soon…so much of euphoria !…it’s like the Markets were drying with the drought of 2008 and had began to recover…now the recovery is with such wet vengence on election results and  with the onset of monsoons now !…There is a GOD above…..but he’s now beginning to tell us to “Sell” !  

What a salute to the Congress and the UPA win in the General Elections !

Sensex saluted with a straight Upper Circuit 10.73% surge on opening…It’s just a shade below 13500….The Nifty had done even better…hitting the second upper circuit of 15% on opening and is over 4200….Markets are to reopen at 11.55 am

I must concede that the chances of a Sub 10000 Sensex level again have receded considerably…but caution must be exercised in this crazy but totally expected bull opening….Let the Shorts cover…Don’t buy in unless you see Value…You never got in at 8000 and you are planning to at 14000!?…In fact makes sense to liquidate some part at 14000+ Sensex levels

I’ve just seen the Bulls on TV come roaring back with optimistic comments of a new High in Nifty coming up…though they did not care about the time frame and that US $ 50 Billion should be FII Inflows in the next year or Two and that PE derating will stop and in fact reverse as will the Declines in the Growth Rates of  Corporate Earnings 

While Stability at the Centre is virtually assured,it remains to be seen how the Congress tackles the rising Fiscal Deficit and the Reforms Process and the need for aggressive Capital Formation…all in light of an ongoing Global Economic Crisis

It is premature to be even optimistic about a Strong recovery in Corporate Earnings

However there is over Rs 20000 crores in Cash with Domestic Mutual Funds waiting to be deployed in Equity….This Domestic liquidity coupled with expectations of better FII Inflow will cap the down side and with this Sensational Overnight Optimism created by the Sensational Election Results will result in a higher trading range for the Sensex…12500 to 16000 is a logical guesstimate…Many are already exclaiming ” There is a God!”

Yet,It would be prudent to sell off some part of the portfolio at a Sensex Level of 14000+…Fear (read Sell)  when everybody is Greedy !…Isn’t that what Buffett advises…There will be a correction,albeit from a higher base 

So what should you sell ?…Remove first the deadweights,even at a Loss…Take advantage of this rally in disposing them….Then reduce exposure in even some selections,where there may be yet some loss,or even some profit….My advice is to stay Heavy with the Heavy weights like Reliance and Larsen for the time being…I love both..The risk with mid caps and low caps and Themes is going to be that much higher with this surge and expect increased Volatility in them…Don’t yet again fall for or be sucked into over optimistic assumptions of Earnings Growth in such companies when you hear Experts on TV or read Research Reports…You can bet there will be a Growth Rate surge in Both ! You’re running the risk of buying into at stretched Valuations

Cautious Optimism is the best recourse so you can also responsibly enjoy this party