Sunday, February 26, 2012

Buy the Dips Continues

This week, the bulls took a bit of a breather and the markets ended down about 2.5 % to close the week at 5430. What does an investor do from these levels?

1. We had spoken of 3 event risks. 1 was Greece, second was the election results and third was the Union Budget. Greece has come and gone and its a classic case of Sell the news. The markets would consolidate till the news of the election results.

2. The election results may be a bit of non event in terms of down side.What happens if Mayawati wins? Status quo continues and the Samajwadi would need Congress help to survive. It is tough being out of power both in Centre and at the State level. Only case where there would be a problem is in case Samajwadi comes to power on its own.
Also, if the Congress does well in elections, expect reforms in the budget else expect more subsidies. This is the last budget before the government goes into election mode. If something meaningful has to come about, it has to be during this budget.

3. The current correction has the FIIs continuing to buy. This is a very good sign for the rally to continue.

4. The Facebook mega IPO comes around May-June and I expect this rally to continue till then.Many would argue we also had a bumper IPO of MCX. MCX is a very small IPO. It has a size of about 600 crores. The huge subscription also points to liquidity floating around.

5. Tata Capital NCD rates are revised to 10.5 %. We would have to send our acceptance once the forms are mailed to holders as on record date of 5th March 2012.i would recommend one continues for the remaining 2 years. This condition of Put and Call option at the end of 3 years was made clear at the time of issuance around 3 years back. Most long term NCDs have this option in place.

6. The current rise from 4532 can be part of an A-B-C up move. A ended at 5630, B is ongoing. B can be split in a, b and c. a might be over from 5630 to 5405. b can go anywhere from 5490 to 5577 followed by c down which can end anywhere between 5210-5350.

7. Post this correction, I see 1 more rally going up to 5750-6000 levels.

I would recommend to add selected stocks and keep lowering the cost of acquisition. Hold these stocks for 3-5 years by adding on dips. The Mid caps and Cherry Picks I picked with Lakshmi are doing pretty well and I would continue holding stocks and adding at every opportunity.

Sunday, February 19, 2012

Buy the Dips

The markets posted one more positive week. They have rallied about more than 1000 points from the bottom on the back of a ferocious rally fueled by FII inflows. How does one play it now?

1. Such a fierce rally cannot get overturned in a day or a week. This rally should continue for some time to come.

2. The factors which can derail this rally are:

a. Greece imploding immediately (Looks unlikely at the moment)
b. Congress fares poorly in UP (Can be a possibility if Maharashtra elections are a trend)
c. Poor Budget (Looks unlikely. I expect a decent budget this time. This again is dependent on UP results.)

3. This rally can be a bear market rally extending up to 5900-6000 or the start of a new bull run. So, how does one play it.

4. Identify about 10 stocks which one wants to remain invested in the next 5-7 years irrespective of where the market goes. Once, one identifies the stocks and keeps tracking them, trade in and out of them when one feels that stock has given decent returns and keep the ones made free of cost or cost of acquisition at very low levels.
Example: IDFC trading at Rs 140, if goes to Rs 180 then sell out half so remaining become priced at rs 100. 100 is a very good price for IDFC and one keep holding for the long term.

5. The above strategy is good for bear market rallies.In a bull market, one must keep holding the stocks.

6. As long as the stock is of good quality, any of the 3 options which can take place need not worry a long term investor. If it goes up, lower the cost of acquisition by selling a few. If it goes down, one can average them out and if the price remains the same, wait and watch.

7. Coming back to the markets, my preferred view, is a small correction max to 5200-5300, then a strong March leading to final blast all the way upto 5900-6000 and then a final leg down in the markets.

8. The markets have generally corrected in the first quarter. If not then, then they have corrected significantly in the month of May.This has been borne out in May 2004, May 2006

For those interested in stocks, Lakshmi's Cherry Picks and the Mid caps have give very good returns. These are fundamentally strong stocks. I personally am invested in most of them and these are the stocks, I generally trade in and out and build a portfolio of stocks whose cost of acquistion is either free or very low.

Friday, February 17, 2012

How to keep building a long term portfolio

How does one go about building a long term portfolio of good shares. I had written a guest post on Subhankar's blog. I hope each of us finds this useful.
Continue Reading at:

Saturday, February 11, 2012

Markets: What next?

This week the market was subdued as compared to the earlier weeks to clock a bet gain of about 56 points on the Nifty. Now, where do the markets go from here?

1. The FIIs continued to pile in the cash. As long as the FII money comes in, the rally will continue. The second tranche of LTRO money is due on Feb 28th and that will be an additional booster to the markets.

2. As per the count last week, the whole fall could have been termed as A. The present up move would have targets of 5650 and 5912. All the retracements have been strong in the previous fall increasing the likelihood of stronger rally. B could rally upto 5650-5900 with a final C leg terminating at about 4000.

3. When and if the markets reach the 5650 and above then will the question arise. Is this a new bull market or just a bear market rally.

4. As I see it, the mid caps will perform well over the next 2 months. accumulate all good mid caps on dips and book about around 5700-5900 and wait and watch.

5. If the Congress does well in Uttar Pradesh, that will be an additional boost to the rally. I expect a good budget this time around.

6. Buy the financials on dips. I have retracement levels of 5085-5217 on the down side.

7. The Greece crisis will be averted. Its just showmanship at the moment and that has been factored in the markets.

8. The momentum has been plateauing a bit. In this rally every week the markets have rallied 122, 120, 182, 156, 121 and 56 points in the last week. So, the momentum is flagging a bit and some correction will be healthy.

For those interested in Stock Picks, I have picked out the picks in Cherry Picks and Mid caps along with Lakshmi Ramchandran. Many of our picks have give 30-40 % returns and the average portfolio return has been 25 % since the lows.

Saturday, February 4, 2012

Liquidity drives the market

The markets are rallying based on FII outflows. The FIIs have pumped in about 13000 crores in this year itself. Where do the markets head out from here? Let us try and find out.

1. The markets made a high of 5335. This also means the correction from 6339 is done with at 4539. Now, for the long term there are 2 possibilities. First is a fresh bull market has begun. If that is the case, then this is the first wave up.

2. Another possibility is we are having a A-B-C correction from 6339. Leg A was 13 months long and about 1800 points. Wave B could 6-8 months and go up to 5650-5700 range and then a wave C to test the election gap. If this is the scenario, then we are in a range bound market with the rang being 4500-5800.

3. The current rally is about 800 points old and about 34 tradings sessions old. It should terminate at about 5400. The supports would the be 5028, 4933 and 4838. The markets would turn bearish only below 4700.

4. The gilt funds have given good returns in the past 3 months and it is clear that interest rate cycle is peaked.

5. For the short term, the supports are at around 5200 and resistances at 5400.

6. The Supreme Court judgement again raises questions over governance in India. Fundamentally, the markets have no reason to rally except for liquidity.

7. In both the cases, a fresh bull run or a retracement rally we are due for a decent correction of 300-400 points. 5000 will be a good support for the markets.

Lakshmi started her stock picks at the right time. They have given good returns. For those interested, they can contact her.