Calamity Drought and you yet want the Sensex to continue to Celebrate !?

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 ! 

4 thoughts on “Calamity Drought and you yet want the Sensex to continue to Celebrate !?

  1. Hi Gaurav,
    I am impressed with your pretty straight assessment of ipo’s as well as current market situation.
    i have totally lost faith wrt blue channel which seem to have something to crib about wrongly all the time.
    Now coming to my question.I am an small investor having a holding of 3.5 lakhs worth shares.
    I would really want to hedge my holdings from downturn with a view of not adding up leverage.
    so a best option looks to be to buy a put option like mini nifty,chotta bse.But the liquidity seems to be so lessin this option. liquidity seems to be gud in the case of futures. But i have already burnt my finger’s once during …elections…..can you please suggest a valid hedging strategy for a small investor like me.
    Thank you very much for the help.

  2. Hi Ravi,

    Welcome

    Unhedged portfolios always give the best returns in the long term….I would urge you to reconsider your intent to Hedge

    Yours is a small size portfolio and it’s not as if any downtrend in the short term will wipe it out…unless your selection of scrips are high beta,very volatile and perhaps not in tune with your risk profile

    I have no idea of the Nature and Type of Scrips in your Portfolio and their weightages…therefore am unable to gauge the portfolio beta and appropriateness of scrips,which is useful for perfect hedging strategies

    My advice is not to worry about being unhedged…Hedging is expensive in our markets as they lack sufficient depth in most Derivative Contracts

    However if you yet are keen,I would suggest you look to Main Nifty and not Mini Nifty…buy one or two Deep end Out of the Money Nifty Puts as they would be cheaper

    Having said that ,it was with some interest I noted some closing quotes today for some aprrox At the Money Contracts of Nifty 4400 and 4500…Nifty closed 4459 today.

    October 29,2009 4400 PE is available at Rs 270…that’s a premium of Rs 13500 on one contract of Rs 220000…that’s 6% for over two month time period to expiry

    And December 31,2009 PE Contract of 4500 is available at Rs 410…that’s Rs 20500 or 9% on a Contract Value of Rs 225000 for a period of over 4 months

    Looking for a cheaper Contract,try the September 24,2009 PE of 4200 (5% drop from today’s closing)…It’s quoted at Rs 62…that’s just Rs 3100 or just 1.5% of the Contract value of Rs 210000 for a period of over a month

    You could consider two of these contracts to fully cover your Portfolio of Rs 3.5 lakhs,assuming your Portfolio beta is 1.2 as your contract values would aggregate Rs 4.2 lakhs….your payoff starts if the Nifty drops over 7% and falls below 4138…Good Value Hedges,in case you wish to Hedge

    But think Long term…three years…. and you may reconsider Hedging

    Cheers

  3. Thank you very much for the advice.Everything really made sense to me..I am a long term investor .so for such a small portfolio paying such huge premium …doesnt seem to make sense.

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