Okay. So the bull has been pushed into the ring. But, can you bear it? I could not help myself against that pun!
Some of the basic questions that you should ask yourself, if you have not really asked this to yourself before:
"When am I going to need that money that i invested in the markets?"
If your answer is "soon", then, fellow, you can disinvest. Yes, sell your holdings- as you are getting definite returns right now. The stock prices are not attractive enough to buy right now- which means, they should be attractive enough to sell. And if you have a reason to sell, that is, you are going to need that money for whatever purpose- it's better to get out and put it into the bank/make an FD.
"But my portfolio is still in the red/I have not recovered my losses."
Now, you are in a precarious situation. If you really need that money, go ahead and sell. It may be possible that the stocks that you hold- and given the recent bull run where most of the folks are back in the green, and you haven't, the stocks that you hold aren't really worth the wait if they're penny stocks. If they are index stocks or good fundamental companies, you may wait, but if it's the pennies- one cannot be sure to say when they'll bounce. It's odd, but penny stocks and long term investments don't go together. If you didn't know this, now you do- and you're a lot wiser, trust me. Coming back to the money, if you do not require that money for a few quarters, you can stay invested, and earn a bit more- do not freak out when the markets correct in the next month- it's October, baby!
"Okay, I don't need that money for now, not even for the year."
You should re-analyse your situation before you come to this answer. As a rule, you should invest only that portion of your savings which you are sure you're never going to need- ever.
"Yes, I'm sure."
Then you should ask yourself.
"What is my risk appetite?"
Basically, this question asks you whether you want to make a killing at the stock markets- risking your investment to the edge, or you want to play safe, and still get better returns than that normal bank fixed deposit, the post office scheme or that mutual fund manager. In order to facilitate a better answer, I'll name the two fellows. The first case would be Jack Sparrow. And the second would be Vito Corleone. Okay, you may not agree with the analogies, but anyways, that's the names i would employ.
If you're Jack Sparrow, ie, you are ready to go whatever distance- to get a killing, which would also imply that you're ready to hold your stocks for verrrry long, you can do a couple-a things.
First and foremost, and this is the general rule that both Jack Sparrow and Vito Corleone follow- do not go by market speculation or punters. Do not go for penny stocks/tips and the like. You would never know when to get out since you did not know when you went in- trust me on this one. Your portfolio should have stocks that have tremendous potential on the upside. Okay, I knew this, how do i identify such stocks? That's tricky, but if you had followed some of my earlier posts/mails, you would know what stocks i'm talking about. I'll suggest a few, but bear in mind that the portfolio i model below is very risky.
1. Bharati Shipyard [CMP: 205, 52wk low: 45, reco: 51.1]
This should comprise of around 15-20% of your holding. The stock had gone to highs of 800, and considering that, it is at tremendous discount at the moment. Also, the company is gearing up to take over Great Offshore, and the battle is being fiercely contested by ABG Shipyard.
2. Spanco [CMP: 63.5, 52wk low: 16, reco:45]
This should be around 10-15% of your holding, depending on your risk appetite for S group stocks and smallcaps.
3. Asian Electronics [CMP: 48.05, 52wk low:17.2]
This is a punter's call. The company is recuperating, after going down hard. If the company gets back on its feet, the stock may easily test 500. It should be 5% of your portfolio, not more given the extremity of the risk involved.
4. Wire & Wireless [CMP: 22.05, 52wk low:7.8]
A loss making unit of Subhash Chandra- this saw highs of 100+ on the bourses when the sensex was at 21000 the last time it was. Fund raising is on, and if, if this manages to break even, all hell may break loose on this one- it'ld boom like anything. 10% is what you can bet on this one.
5. Vikash Metal & Power [CMP:21.8, 52wk low:4.8]
This saw highs of around 50, and this time it may go even further. It was planning a big power project in Bihar which is said to be operational by 2011. Another 5% here.
6. Technocraft Industries [CMP:42.2, 52wk low:17]
This hasn't really seen great heights till now, and is a good contender for big bull runs. A dividend paying company, with increasing toplines, this is a favorite for long term investors, and one of my personal favorite. Keep 15-20% here. This is a good bet.
7. The rest of the portfolio should be cash/contrarian stocks such as the FMCG ones- HUL, ITC, Castrol, etc. or pharma stocks which you can use to sell and average out (do not avg out Asian Electronics- that's a total gamble) one of the above, when they flunk.
If you think you're Vito Corleone, the reverse would apply, albeit even more moderately:
1. Clariant Chemicals [CMP: 362] - 20 to 25%
An MNC paying good dividends. Good fundamentals, and great balance sheet. Negative? At the all time high right now.
2. Lupin [CMP: 1136] - 10-15%
Again, great fundamentals. It's been doing some good M&As lately, and may surprise you with its results.
3. HUL - 20-25%
The safety net of HUL is a must for Vito Corleone, who would insist on investing rather not too rash!
4. Rei Agro - 5%
Beaten down stock, will roar when it gets into the groove.
5. Pfizer/Lakshmi Machine Works/Bharti Airtel/Biocon/Punj Lloyd/TCS
These 6 should make up the rest of your portfolio considering your choice.
Notice the sectors i'm bullish upon. It's the same as i discussed before, much before this bull rally. I'm still bullish on the same! If you know what you're doing, and it's contrary to what others are saying, you're probably doing the right thing. And that's what being Vito Corleone is, isn't it!?
And yes, tighten your seat belts, it can go anyway from here!
Interesting Article: Another 50% Crash Prediction!
BAM Investor's financial model has an uncanny record of calling specific, key market movements. When crude oil was trading rapidly up to an all-time high of $147 per barrel, BAM predicted a crash to $36 over the next 12-18 months; 8 months later, it crashed to exactly $36. When corn and wheat were trading near historic lows in 2007, BAM told investors to buy; the next year corn and wheat hit a 26 year high. When Ford was trading near this year's lowest point in February, BAM recommended a buy; it then called a sell in August for a 400% gain.
Read the full article at the original place here:
http://www.prweb.com/releases/twitter/marketpredictions/prweb2896604.htm
StocksCenter View:
I doubt this will happen. If it does, the trillions spent in the bail out would count for nothing, and it'll be the W shape recovery, if it IS a recovery, making the current bounce a dead cat bounce. I don't know how many Vs are there here, but in the longer run, the capitalist economy would be of many Vs, each climbing up- because of the inflation. Asset bubbles are inevitable in a capitalist economy, why then, are we worried about recoveries and crashes? Survival of the fittest is the rule in any game. Bet on the fit, and you'll stay fit! After all, the saying- health is wealth, is purely symmetric!
Read the full article at the original place here:
http://www.prweb.com/releases/twitter/marketpredictions/prweb2896604.htm
StocksCenter View:
I doubt this will happen. If it does, the trillions spent in the bail out would count for nothing, and it'll be the W shape recovery, if it IS a recovery, making the current bounce a dead cat bounce. I don't know how many Vs are there here, but in the longer run, the capitalist economy would be of many Vs, each climbing up- because of the inflation. Asset bubbles are inevitable in a capitalist economy, why then, are we worried about recoveries and crashes? Survival of the fittest is the rule in any game. Bet on the fit, and you'll stay fit! After all, the saying- health is wealth, is purely symmetric!
Investment Pick: Koutons Retail India Ltd
Koutons [BSE: 532901, NSE: KOUTONS] is a mass market apparel retailer, with hundreds of stores across the nation. Koutons operates stores under three brand names: Koutons, Charlie Outlaw and Les Femme. These stores offer apparel, accessories and footwear for men, women and children. A new product line KZone2 (footwear products) was launched in the last quarter of FY09 with a target of 50 Koutons to support it. The production for this is said to have been outsourced. It is also pursuing the concept of 'Family stores', which will have apparels for men, women and children at the same place. The company started 182 'family stores' in FY09. It is also converting existing outlets into family stores.
Koutons went public in 2007. The IPO was priced at Rs. 415. The Current Market Price is much lower than the IPO price. On Sep 25 2009, the stock closed at Rs. 330 on the BSE. One would think, why would i invest in a sector highly affected by recession? There are many answers.
First, Koutons follows the franchisee mode of business. It has stores in all big (a massive network of more than 1,400 stores across the country covering 496 cities) and not so big cities in the country. But it doesn't own them. This mode of business, although reduces margins, but remains a defense against rising rentals, unnecessary inventory buildups, and other such problems plaguing the big retailers. With economies of scale, Koutons has been able to sustain the recession courtesy its business model. While designing, manufacturing and distribution is being done in-house, the franchisee model for retail has helped it control costs. Also, the products of Koutons are not very expensive, and are affordable to the masses. And thus, it manages conversion of 80-85% footfalls into sales. Koutons showed a 32 per cent increase in sales for the full year 2008-09 versus the last year with an equal increase in operating profit of more than 30%. Koutons is a good performer at operating margin levels, maintaining a steady growth on an annual basis in a span of three years; operating margins for H1FY09 were at 18 per cent.
Also, Koutons is expanding. About 90% of retail expansion is carried out through franchisees. The average agreement period of a franchise is of around 8-10 years, and Koutons' franchisees have remained loyal in most of the places i have seen, at least. This is another positive for such a company- if the franchisees are staying, it means they're making money- which means Koutons can have a better topline. Capex requirement is low. Rentals and employee costs, which have been a key drag on margins and funding requirements of many retailers in India- are to be borne by the shop owners. This makes rapid expansion possible. Koutons now plans to raise Rs. 100 cr by a QIP issue for the same.
Negatives for the company? Debt at high interest. It owes money to foreign banks which charge more for the loans. However, debt restructuring has led it to transfer the debt to PSU banks that charge lower rates.
The valuations are attractive, top line is increasing and so is the operating profit margin. What is killing the net is the high interest rates. At Rs. 330 a share, Koutons is still a good investment proposition (although it doesn't give good dividends) given the fact that it has not yet inflated to higher levels as have its peers. It has an impressive book value of 140 and an EPS of around 26. That makes it trade at P/E of 12.6 with a market cap of 1008 cr. Its peers Pantaloons and Provogue trade at P/Es of 43 and 26 respectively.
Historic Price of Koutons:
In the short term, an upward correction is possible.
Koutons went public in 2007. The IPO was priced at Rs. 415. The Current Market Price is much lower than the IPO price. On Sep 25 2009, the stock closed at Rs. 330 on the BSE. One would think, why would i invest in a sector highly affected by recession? There are many answers.
First, Koutons follows the franchisee mode of business. It has stores in all big (a massive network of more than 1,400 stores across the country covering 496 cities) and not so big cities in the country. But it doesn't own them. This mode of business, although reduces margins, but remains a defense against rising rentals, unnecessary inventory buildups, and other such problems plaguing the big retailers. With economies of scale, Koutons has been able to sustain the recession courtesy its business model. While designing, manufacturing and distribution is being done in-house, the franchisee model for retail has helped it control costs. Also, the products of Koutons are not very expensive, and are affordable to the masses. And thus, it manages conversion of 80-85% footfalls into sales. Koutons showed a 32 per cent increase in sales for the full year 2008-09 versus the last year with an equal increase in operating profit of more than 30%. Koutons is a good performer at operating margin levels, maintaining a steady growth on an annual basis in a span of three years; operating margins for H1FY09 were at 18 per cent.
Also, Koutons is expanding. About 90% of retail expansion is carried out through franchisees. The average agreement period of a franchise is of around 8-10 years, and Koutons' franchisees have remained loyal in most of the places i have seen, at least. This is another positive for such a company- if the franchisees are staying, it means they're making money- which means Koutons can have a better topline. Capex requirement is low. Rentals and employee costs, which have been a key drag on margins and funding requirements of many retailers in India- are to be borne by the shop owners. This makes rapid expansion possible. Koutons now plans to raise Rs. 100 cr by a QIP issue for the same.
Negatives for the company? Debt at high interest. It owes money to foreign banks which charge more for the loans. However, debt restructuring has led it to transfer the debt to PSU banks that charge lower rates.
The valuations are attractive, top line is increasing and so is the operating profit margin. What is killing the net is the high interest rates. At Rs. 330 a share, Koutons is still a good investment proposition (although it doesn't give good dividends) given the fact that it has not yet inflated to higher levels as have its peers. It has an impressive book value of 140 and an EPS of around 26. That makes it trade at P/E of 12.6 with a market cap of 1008 cr. Its peers Pantaloons and Provogue trade at P/Es of 43 and 26 respectively.
Historic Price of Koutons:
| Year | Open Price | High Price | Low Price | Close Price | No. of Shares | No. of Trades | Total Turnover(Rs.) | * Spread (Rs.) | ||
| H - L | C - O | |||||||||
| 2007 | 515.00 | 1,055.00 | 515.00 | 1,006.85 | 11030257 | 211558 | 7,327,714,088.00 | 540.00 | 491.85 | |
| 2008 | 1,018.70 | 1,098.00 | 380.50 | 508.25 | 1684573 | 32268 | 1,223,324,945.00 | 717.50 | -510.45 | |
| 2009 | 529.90 | 548.90 | 324.10 | 330.00 | 2412134 | 49178 | 958,485,748.00 | 224.80 | -199.90 | |
| * Spread H - L -> High - Low C - 0 -> Close - Open | ||||||||||
In the short term, an upward correction is possible.
Short Term Gaps/Opportunities
1) Mahindra Ugine Steel Company
CMP: 41.5
Target: 45-47
Timeframe: 3-4 weeks
After a sharp upmove to the levels of 46-47, the stock witnessed an immediate correction. With sentiments improving, this stock can again show upside movement.
2) Rajesh Exports
CMP: 75
Target: 80
Timeframe: 2-3 weeks
This one is tricky. After having risen at a scorching pace, it slowed down today. Before going to the levels of 80-81, the stock may correct further. The head says it should correct further, but the bull in me says it'll stay risen.
3) MRPL (Mangalore Refineries)
CMP: 85
Target: 94
Timeframe: 1-1.5 months
This stock saw strong support at the level of 80, and severe resistance at 90. This time, we forecast an upward shift in the trading range, with 87 being pivotal being extremely bullish. If it breaks 80, and sentiments deteriorate, exit. Else, if the sentiments do not deteriorate, keep holding this one. It is well poised to breakout.
4) Spanco
CMP: 62
Target: 67
Timeframe: 1-2 weeks
The stock's been slow recently after a spurt from 45 to 75, going down again to the 60s. An upward revision is highly possible.
CMP: 41.5
Target: 45-47
Timeframe: 3-4 weeks
After a sharp upmove to the levels of 46-47, the stock witnessed an immediate correction. With sentiments improving, this stock can again show upside movement.
2) Rajesh Exports
CMP: 75
Target: 80
Timeframe: 2-3 weeks
This one is tricky. After having risen at a scorching pace, it slowed down today. Before going to the levels of 80-81, the stock may correct further. The head says it should correct further, but the bull in me says it'll stay risen.
3) MRPL (Mangalore Refineries)
CMP: 85
Target: 94
Timeframe: 1-1.5 months
This stock saw strong support at the level of 80, and severe resistance at 90. This time, we forecast an upward shift in the trading range, with 87 being pivotal being extremely bullish. If it breaks 80, and sentiments deteriorate, exit. Else, if the sentiments do not deteriorate, keep holding this one. It is well poised to breakout.
4) Spanco
CMP: 62
Target: 67
Timeframe: 1-2 weeks
The stock's been slow recently after a spurt from 45 to 75, going down again to the 60s. An upward revision is highly possible.
The markets are doing the unpredictable .. Again!
Whew! What a week it was. As we had discussed earlier, the markets were choosy between scrips again this week. Most of stocks that had risen a lot the week before last, slowed down, while new ones took speed. Let me exemplify. On the SENSEX itself, Tata Steel, Ranbaxy, Grasim, Hindalco and Hero Honda (who's up more than 20 % over this month) were traded higher, while Reliance (who got beat due to the selling of 1.5 cr shares in the open market by the promoters), BHEL, HDFC, ICICI Bank, L&T and ONGC slowed down.
The current scenario of the market is such that it would make one comfortable with the situation- every one is happy, and every one is winning (i'm talking about the bulls here!). And from here again, two things are possible. The bulls may beat the bears in a protracted breakout, or otherwise, the bears may maul the bulls in a much awaited correction. But the general sense is that with a lot of FII money having flown in in the last week, the bulls are going to have a larger say in the market. Have a look at the inflows: (data from Bseindia.com)
The volumes in the cash market have risen, and the current sentiment makes one do wishful thinking about the highs of 2007 and the 21000 on the Sensex.
The current movement in the market is characteristic. This has happened a lot of times, but I remember it happening twice, as significant events took place then. First, the great bull run. If you're a bull, you're going to like this! There are downsides in individual stocks- on bad news, and profit booking, but these downsides are masked by upward moves in the other stocks. In the general sense, the increase in the premiums mask the increase in the discounts- over the broader market. Operators seem to have stepped in in most of those smallcaps where one would see potential, but that would, of course be- a mistake. Of course, those stocks would be launched to levels of 5x or even 10x, or God knows where, but they would not create wealth. A hint of bad news, or sentiment, or when the operators' job would be done, and the stock price would come tumbling down. Punters would die, and the investors- the real ones would survive. Darwin's law stays here as well, but we have to modify it a bit. Survival of the rational. That drives me to the second event when we saw such movement in the markets, albeit on the downside. When markets rose to unimaginable levels in Jan '08, there were similar movements in stocks. People were not booking profits, and were under the impression that they were creating wealth. When the bubble burst, their wealth disappeared, and we know the cause and effects.
This time, you would think, you are smarter. You would think that you're mature. But when greed takes over, you lose your rationality.
My personal opinion is that one should not start looking for the stocks labeled as multibaggers/penny stocks/rocket stocks/tips and the like. Stick to the basics, stick to good companies and you'll have good returns in the longer term. I remember talking to a person who booked profit in L&T when it was at the levels of 300 rs/a share some years ago. The company then gave bonus shares twice, and is now at 1600+. The person had booked profit in the company at that level and reinvested the money elsewhere. If he had kept that money there, in L&T, (he knew the company had a lot of potential- given the large infrastructure plans of the country) he would have been a crorepati now. But that also doesn't mean that history would repeat. L&T can die in a year (I don't like the sound of this), and the world may end (I don't like the sound of this either!). The point is, invest in a good company if you're a long term investor, and if you are a short termer, know when to get out, and get out then. Love the cash, don't love the share.
You should know what your company is doing, and know the risks involved in the business- and if possible, the risks that your company is taking. Develop that risk appetite, while being rational. If something can go wrong, it probably will go wrong.
The current scenario of the market is such that it would make one comfortable with the situation- every one is happy, and every one is winning (i'm talking about the bulls here!). And from here again, two things are possible. The bulls may beat the bears in a protracted breakout, or otherwise, the bears may maul the bulls in a much awaited correction. But the general sense is that with a lot of FII money having flown in in the last week, the bulls are going to have a larger say in the market. Have a look at the inflows: (data from Bseindia.com)
| (Rs. crore) | ||||||
| FII | DII | |||||
| Trade Date | Buy | Sales | Net | Buy | Sales | Net |
| 18/9/09 | 4,155.40 | 2,669.32 | 1,486.08 | 1,213.82 | 1,719.20 | -505.38 |
| 17/9/09 | 6,122.95 | 3,363.49 | 2,759.46 | 1,820.48 | 1,634.24 | 186.24 |
| 16/9/09 | 3,631.16 | 2,525.52 | 1,105.64 | 1,723.46 | 1,580.01 | 143.45 |
| Sep, 09 | 41,795.68 | 34,567.12 | 7,228.56 | 20,005.15 | 19,058.66 | 946.49 |
| Since 1/1/09 * | 402,325.45 | 389,557.21 | 12,768.24 | 215,326.89 | 191,363.46 | 23,963.43 |
The volumes in the cash market have risen, and the current sentiment makes one do wishful thinking about the highs of 2007 and the 21000 on the Sensex.
The current movement in the market is characteristic. This has happened a lot of times, but I remember it happening twice, as significant events took place then. First, the great bull run. If you're a bull, you're going to like this! There are downsides in individual stocks- on bad news, and profit booking, but these downsides are masked by upward moves in the other stocks. In the general sense, the increase in the premiums mask the increase in the discounts- over the broader market. Operators seem to have stepped in in most of those smallcaps where one would see potential, but that would, of course be- a mistake. Of course, those stocks would be launched to levels of 5x or even 10x, or God knows where, but they would not create wealth. A hint of bad news, or sentiment, or when the operators' job would be done, and the stock price would come tumbling down. Punters would die, and the investors- the real ones would survive. Darwin's law stays here as well, but we have to modify it a bit. Survival of the rational. That drives me to the second event when we saw such movement in the markets, albeit on the downside. When markets rose to unimaginable levels in Jan '08, there were similar movements in stocks. People were not booking profits, and were under the impression that they were creating wealth. When the bubble burst, their wealth disappeared, and we know the cause and effects.
This time, you would think, you are smarter. You would think that you're mature. But when greed takes over, you lose your rationality.
My personal opinion is that one should not start looking for the stocks labeled as multibaggers/penny stocks/rocket stocks/tips and the like. Stick to the basics, stick to good companies and you'll have good returns in the longer term. I remember talking to a person who booked profit in L&T when it was at the levels of 300 rs/a share some years ago. The company then gave bonus shares twice, and is now at 1600+. The person had booked profit in the company at that level and reinvested the money elsewhere. If he had kept that money there, in L&T, (he knew the company had a lot of potential- given the large infrastructure plans of the country) he would have been a crorepati now. But that also doesn't mean that history would repeat. L&T can die in a year (I don't like the sound of this), and the world may end (I don't like the sound of this either!). The point is, invest in a good company if you're a long term investor, and if you are a short termer, know when to get out, and get out then. Love the cash, don't love the share.
You should know what your company is doing, and know the risks involved in the business- and if possible, the risks that your company is taking. Develop that risk appetite, while being rational. If something can go wrong, it probably will go wrong.
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