Opinion: What to do now? Opportunity Lost?

With most of the stocks having rallied from their bottoms by over 100%, the margins for long term investors have shrunk. I remember scouting for stocks with upsides (relative to the historic data) of 10x the CMPs (the then CMPs), and now while some have their upsides shrunk to 5x, many have shrunk to even 3x or 2x. Take for example our stock pick Voltas. I had tracked it to lows of Rs. 30, and was mulling a buy. Then it spurted to the levels of Rs. 50 when I decided it was safe enough, and posted it thus on the blog. Even then, the upside (considering historical stock moves) was 5x. Now it's a mere 2x with the stock trading in the range of 125-150.

So what's pushing up the market? CLSA says the Indian stock market is now on a different road than the US Markets (the S&P). I rather doubt it. True, there has been massive money movement -in and out- that suggests a potential restructuring of positions of FIIs. But that alone cannot support the theory. Much (not all) of the boom that had been heard in 2005-2007 had been created by the growth of companies that were export oriented. The export oriented units have prospects that cannot be separated from those of the markets to which they supply. The domestic companies (whose primary market is domestic) have the risk of saturating their existing markets, and need to go out of the country. So where would they go? They definitely cannot go west if the bad conditions prevail.

What is pushing up the markets is purely speculation. In all forms. People say the speculation is based on great expectations from the new budget. There are two things here. One, the promising ministers can't influence the asian markets. So, why are they rising in sync? There is a larger game being played, and you have to be smart enough to get out at the right time. Take the recent case of Satyam. There was speculation of the offer price being raised. On this base, the share price moved from 50 to 70. When that did not happen, the stock plummetted on Friday by over 6%. A long term investor would care less about this, and what i am trying to convey is the importance of fundamentals. A company which has a good management doesn't get hurt if the government rolls out lesser incentives. A company which is fundamentally strong, and knows what it is doing has prospects that would not be shaken even when there would be a weaker government than there is now. This brings in the second point. Real estate stocks. These have rallied madly over the past few months. To put things in perspective, Parsvanath's share moved up from Rs. 30.55 to Rs. 108. This movement is not attributed to the state of the company- if you would be thinking that (as is conventionally the case) the share price is reflective of the good growth the company has suddenly acquired over the last one month in its business, you cannot be more illusioned. I have seen sites of Parsvnath where the trucks/machines haven't moved since the last 3 months. Smart money, someone said.

So, my advice to you is to not be influenced by market speculation, and use balanced thinking before taking any investment decision. A company with good fundamentals but slow stock movement is better than one with bad fundamentals with multibagger potential.

There is no stock pick this weekend for such understandable reasons. However, i will list out some scrips with good fundamentals as i discussed:
1. TCS
2. Infosys
3. L&T
4. Sun Pharmaceuticals
5. Gateway Distriparks
6. Opto Circuits Ltd
7. Cairn
8. Kesoram Industries
9. Mahindra Ugine Steel Company

Note that the CMPs may not be the proper levels for creating long positions in some of these- but their fundamentals are good and so are the promoter intentions!