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Mark Mobius

Sensex and Nifty up 50% in Six Months !…Where to now !

On September 27,2008,seven months ago the Sensex was 13000 and I had put up a contrarion blog

I had said the Sensex is moving towards a Distress Zone and will break below 10000 to provide a great opportunity to build wealth over the coming years…so one should bring in Fresh funds to top up their portfolios and not sell 

Just a month later,on October 27,2009 the Sensex dropped below 8000,having begun the month at 13000 levels….from there,six months later on May 4,2009 it is kissing 12000,a rise of 50 % !

Yes of course,there was a problem end October 2008 with both,Cash and Conviction….. most were simply just too reluctant and resistant to add to their Eroded Equity Portfolios,lacking either one or both….but some who did,have reaped good returns…Their portfolios have recovered faster than those who just stayed put.

For example a portfolio that had eroded 50 % from Rs One crore to Rs 50 lakhs in 2008 by October 2008,infused fresh funds of Rs 25 lakhs…The portfolio would be currently, having crossed Rs One Crore,  moving towards Rs 1.25 crs,thus recovering the full portfolio erosion…If this fresh infusion was not made the erosion would yet be 25% in the portfolio,whose value would have climbed but only to @ Rs 75 lakhs…In fact many scrips that had a brilliant 2007,like IFCI that touched Rs 130,have barely recovered from their 2008 crash…IFCI has moved just from Rs 16 to Rs 27…yet a far cry from Rs 130 !…making the recovery process that much more difficult…Unitech is another prime example…

However there is great Historic precedence in the Belief that Long Term Investors should never exits Shares of Core,Strong Growing Companies…..Reliance,Larsen,BHEL…..instead on significant declines like we witnessed in 2008,fresh funds should be infused to top up portfolios…the recovery is that much faster

As I end this Blog past 1 pm,the Sensex has crossed 12000 having  surged 607 points and 5%,while the Nifty is just a shade below 3650

As I blogged last week….don’t short this market…you’re up against Momentum and Liquidity….However do blend Optimism with Caution at these levels….Our General Elections Results will be out on Saturday,May 16,2009……You get a Hung Parliament….Expect the Sensex to Hang too !

The Jury is yet out on whether this is merely a strong Bear Market Rally that may last a few months…Commodity Guru,Jim Rogers thinks so…..or it is the confirmation of a new Bull Market…Mark Mobius of Templeton,Abbey Cohen of Goldman Sachs and even Fidelity’s Head think so read more

Investment Guru Mark Mobius calls for an end to Short Selling…I disagree

Investment Guru,Mark Mobius, calls for an end to Short Selling…”Short Selling is Not Investing.We have to seperate Investing from Gambling……We’ve got to get back to the fundamental concept of the stock market-the supply of Capital,the raising money for Growth” says he. 

Mr Mobius,with due respect to your justified sentiments in these troubled times,I disagree.

Although I too don’t Short Sell as I believe it creates Wealth by actually Destroying Wealth…if you know what I mean !

But Short Selling has a definitive Role to Play.

Speculation is the lifeline of a thriving Secondary Market.Ofcourse it must be controlled and regulated and not allowed to become wanton or reach dangerous proportions

Short Selling serves the twin purpose of fair price discovery and share availability…it is only it’s misuse that creates the anger and angst.

For example if Infosys in India was traded at an excessive price of Rs 16000,like it did in 2000,at crazy triple digit P/E multiples why should I not be allowed to put my money where my mouth is and short Infosys…It dropped to below Rs 2000 at one stage

I’m sure you wish for Short Selling to be banned across all Asset Classes and Derivatives…..Was George Soros wrong in shorting the British Pound in 1991 to make his Billion ?…The Pound was clearly overvalued at the time as England refused to join the ECU and the Central Bank tried in vain to defend the Pound…If I recall it spend 44 Billion Pounds to do so 

Also the Secondary Market will thrive if there is continuous and adequate Liquidity and availability of Stock

By a Blanket ban on Short Selling, as you have strongly called for,Mr Mobius,you would be throwing out the Baby with the Bathwater.


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