Sensex moves smartly near 25% from just above 8k to near 10k in March 2009..Is this sustainable ?

In thirteen trading days from an intraday low of 8047 on March 6,2009,the Sensex is once again kissing 10000….moving up near 25%

Getting a lot of calls…basically to make some sense of this rally

Is this the beginning of the recovery and have we seen the Bottom of 8000 for the Sensex and the October 27,2008 low of 7697 will not be tested ?

Or

Is this just a Pullback rally and we shall see the Sensex breach 8000 again in 2009 ?  

I hold the view that the macro pains have yet to unfold in their entirety…This rally is a strong counter- trend and a powerful one at that…. we shall see such bounces on oversold markets…Maybe the Bottoms may not  be tested for a while…but they will

In fact even on October 27,2008 when the Sensex touched a intraday low of 7697,it swung back sharply within just three days to close at 9788 on October 31,2008 !…and it had begun October at levels of 13000 !

If you think the WORST MUST BE OVER ,then think again !…Sensex at 11 and 12 multiples may appear cheap against the 25 + Multiples we had in January 2008….With Earnings slowing down,we’ll probably see single digit P/E,trailing and forward, on the Sensex in 2009 and that would sustain for some time

The Dow took 25 years to regain it’s 1929 High…It did so in 1954 !…Our wait for the Sensex to regain 21000 should not be so long !…Right Now I see Stressed Prices but not Distressed Prices on our Bourses…..These will come in 2009 itself and give you some great buying opportunities.    

Ask an Investor who got into Unitech at Rs 500 in January 2008,whether he’s excited with this rally !…he may be too shell shocked anyway to respond !

The poor Bloke saw a 95% erosion to Rs 25 in just over a year….he now needs to get a 1900 % surge to recover his loss of Rs 475…so if Unitech has gone up 40% from Rs 25 to Rs 35 how does this matter to him !….so don’t live under delusions and the phony excitement being generated by experts and TV Anchors on the Stock Channels of this “big” 40% gain in Unitech

These swings require you to have a Traders Mentality to capture opportunities…and that’s a tough ask….I thought Investment was about Investment !…not Trading or Speculating ! 

So what do you do to recover from being Hit last Year in Equity ? Some Thoughts….

  • Just Holding on to your Equity Portfolio may not work as some scrips may have seen permanent erosion…so review and reposition…believe me taking a real loss than sleeping everyday with a notional one is a big relief !
  • Save/Hold/Generate Cash to capture greater opportunities ahead 
  • Hedge your Portfolios against declines…the volatility is just too unnerving
  • If you must Trade then do so with strict stoploss
  • Use upswings to exit some holdings to create cash to later capture scrips at distress prices to reposition your Equity Portfolio 
  • Be prepared to adopt a tactical,rather than strategic, approach to capture great opportunities
  • Get some significant Gold exposure in your Portfolio…Physical or through ETFs
  • Ensure proper Asset Allocation to suit your Risk Profile and be disciplined in the rebalancing exercise when predetermined allocation ranges are breached

You’ll be deafened and confused by the divergent views and the cacophany being generated on the channels and the print media by a host of Experts and TV anchors

Try some Independent Thinking….after all it’s your monies at stake….If you’re going to stick your nose at ‘Monalisa’s nose you’re not going to see her smiling at you from whichever angle you look at this Leonardo Da Vinci Masterpiece…..Stand back to look at the whole landscape and get a feel of the macros…only then you’ll get a feel of how they intensely impact the micros currently 

There are Plenty Opportunities coming up…It’s better to be prepared and not get them rather than you’re faced with them and you don’t know what to do or don’t have the cash to do so !

Value and Price are two very different Issues…Milk in Mumbai is sold at @ Rs 25/litre….would you buy it at Rs 60/litre ,even if it’s a Swiss Cow giving it !?….But when it’s at a distress Rs 5/litre don’t question the buying opportunity by being skeptical and saying ” Doodh meh kuch kaala hai !” 

I made strong contrarion calls in 1992,1997,2001 and 2003….missed the speed,scale and intensity of the USA Financial Fiasco that has burned the world markets….I’m gearing to make a contrarion call again in 2009….so these bounce back rallies are only delaying distress prices on the bourses and therefore my call….I’m patient….even if this bounce may take the Sensex up to 12k

Get the Point !

5 thoughts on “Sensex moves smartly near 25% from just above 8k to near 10k in March 2009..Is this sustainable ?

  1. Sir , appropos to ur 26 march pst , u say u see stressed prices not DISTRESSED PRICES.
    WITH DUE RESPECT MAY I KNOW IF U CALL PRICES ON 26 MARCH STRESSED THEN WAT DID U CALL THE PRICES ON 27 OCTOBER 2008. TATA STEEL WAS 120 ON THAT DAY PLZ ENLIGHTEN ME WAS THAT STRESSED OR DISTRESSED PRICE AND THERE ARE MANY MORE EXAMPLES IF U COMPARE THE PRICES OF 27 OCT AND 26 MARCH.
    I WONDER IF ANY BODY WILL SEE THOSE PRICES AGAIN.
    FROM U I ONLY WANTED TO NOW ABOUT STRESSED AND DISTRESSED PRICES .
    HOW DO U TAG THEM STRESSED OR DISTRESSED

  2. Dear Dr Sudeep,

    Thanks for your responses

    I’m not great on Technicals…I understand Vivek Patil is…..

    I go purely by Fundamentals

    Distress Prices were there on the New York Stock Exchange…Citicorp down to a Dollar,GE etc

    In India,this Century,I’ve seen and called Distress Prices in Aug/Sept 2001…even before 9/11 occurred…infact had a special workshop called Repairing,Revitalising and Reconstructing your Portfolio…listing out 46 companies under various parameters

    Then again saw Distress in 2003 and 2004

    On a macro,the Sensex Forward P/E must drop into single digits for a sustained period,to consider some strong contrarion buying……It’s 12/13 currently….on a micro,the Scrip P/E should be 1 to 3 for small and mid size companies and under 5 for scale companies,with little or no leverage and a stable earnings growth and a viable business scale

    Tisco at Rs 120 was certainly attractive…definitely a missed opportunity in the short term…and I daresay even in the long term…However it’s FCCB Leverage is worrying and can dampen and cap the share price

    The raging debate is whether we will test October 2008 Lows again…we’ve bounced back 40% from there already ! and that’s strengthening Hope and Optimism all around that the rally will sustain

    However,I hold the view that the global mess is far from being cleared and being played out…there will be some more pain…the scale remains scary and uncertainties remain high…though the Impact on India will not be as strong as in USA or Europe,our forthcoming elections clearly show no decisive mandate in the offing

    Thus I hold a View that this is a strong bounce back,but there would be further correction…the jury is yet out whether October Lows will be tested….We’ll definitely see distress prices if they do

    Also Investor Risk Profiling and Asset Allocation discipline is critical in Equity Investments to decide Entry and even Exit Ranges

    In some earlier blogs,I’ve opined that some scrips will drop to distress prices before others…we need to look for such opportunities in difficulties and not see difficulties in opportunities…Firstsource Solution dropping to Rs 10 is a good case in point…It’s climbed back to Rs 17…yet far away from it’s 2007/2008 Highs of over Rs 50

    You’ll know when it’s excruciatingly Distress Time….simply no one wants to touch Stocks !…as if the markets are taboo and evil and on the verge of closing down !…..NY came close recently !…we may not,but I’m awaiting another move towards… to capture such prices in selected scrips

    Currently I’ve got 390 Companies on my Stock watch Spectrum ,a selection of some of them with their Distress Ranges to enter…some have entered this zone in the past few months already and the opportunity captured…That’s why I love a Falling Sensex !…Reduces Risk and extends many more opportunities…and that’s why I don’t like this Big Bounce back as the repositioning exercise was not completed.

  3. DEAR GAURAV
    PLZ EXCEPT MY HEART FELT THANKS FOR REPLYING TO MY POST. NEVER EVEN IN MY WILDEST DREAMS I HAD IMAGINED THAT U WUD TAKE OUT TIMES FROM UR BUSY SCHEDULE AND READ MY POST (FORGET ABOUT RELYING) U NOT ONLY WENT THRU ITBUT ALSO REPLIED . I AM SO OVERWHELMED BY UR HUMBLENESS.
    I AM REPLYING FROM MY HOSPITAL THOUGH THERE ARE PATIENTS WAITING ( NO EMERGENCY CASE) BUT I FELT SO GOOD THAT I THOUGHT I SHUD REP BACK ATONCE.
    I TOTALY AGREE WITH UR LOVE FOR FALING SENSEX.
    I TOO LOVE A FALLING SENSEX, EXCEPT THAT I DONT HAVE A STOCK WATCH SPECTRUM LIKE U , NEITHER I HAVE THE REQUIRED EXPERTISE TO ANALYZE THE STOCK THE WAY U DO NOR I HAVE RESOURCE.
    UR BLOG HAS HELPED ME ALOT AND I KNOW IT WILL KEEP HELPING ME IN FUTURE AS WELL
    THANKYOU FOR BEING SO FORTHCOMING ON UR BLOG.
    WISH U ONLY THE BEST.

  4. OH YES ABOUT THE TECHNICALS
    U SAY U R NOT GREAT BUT I HAVE READ UR BLOGS ON TECH AND U HAD ADVISED TO CATCH THE B WAVE ALWAYS ….. . ( AM I CORRECT)
    AND THAT WAS A VERY GOOD ADVICE.

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