Hi,

The market has touched 20,000 mark on Sensex and 6,000 on Nifty. This is not the big news!

The real big news is the pace of last fortnight, during which the market rose more than 10% in
unidirectional, swift and confident way. Most of us, including myself, were bracing for 5-10%
fall. But when our market started to hold its ground, while their counterparts from other parts
of the world were falling, or were looking vulnerable to fall, I was slowly starting to think that
fall wouldn’t come, will be too shallow to be meaningful. And as I wrote earlier, 5550-5600 on
Nifty was a major resistance zone, and there always was a gap, since next resistance is at 6000
on Nifty. The 5600 resistance was held few times and the market cooled of after touching it.
Thus, it was clear that if the market would break 5600, on closing basis, there was great chance
of a blow out- i.e. rising further and faster within a span of few trading days.

It indeed crossed 5600, and the FIIs, who were waiting for a correction to enter the market,
became impatient, giving a vicious up-cycle. Now the market is at another resistance level-
20000/ 6000 on Sensex/ Nifty. They say the rear mirror is anyway clear and analysis will explain
every market movement in retrospect! Somewhat agreed! But, the question in most of your
minds is- what to do now? Buy? Sell? Or Pray? Or fall prey?

Let us divide the investors into three categories, based on their degree of investment. I.e. how
much cash in the portfolio or how much further they intend to invest in next six months:

1) Category 1: Those like me, who invested deeply in the last bear market, and have less
than 10% cash in the portfolio. Also, they do not intend to invest substantially in next 6
months (i.e. they do not want to invest more cash than 10-15% of their portfolio in next
six months).

I would recommend the strategy which I am following since last 15 months. We were
very brave-heart in the bear market, and have thus made decent profits. But the Indian
growth story is still strong, and I want to remain invested to gain further. However, as
the market has risen sharply in last 10 days, some cool-off period is necessary for
consolidation. Have courage to be calm, since sky will not fall if the market falls 10-15%.
In fact, a correction could be availed as buying opportunity, like an ‘icing on the cake’.
But be light, repay all loans, since I think the market is in phase 2 of this bull rally and
one should be prudent in second part of bull rally. Who knows, you may need loans to
invest next year or in 2012, as every bull market is followed by bear market! Use
portfolio reshuffling to get out from hot sectors like FMCG and Pharmaceuticals, and
invest more in select midcaps- like Tata Elxsi, or even in laggards like Reliance Industries.

2) Category 2: Those, who have media exposure, and although they missed the initial rally,
they invested steadily, and have 10-20% cash or planning to infuse substantial cash into
the portfolio in next six months.
 Do not be panic in buying, as bull markets has always intermediate corrections- 10-15%
fall and then rise again. This bull market should not be an exception. But remember that
various technical (Options underwritten, oversold indicators etc.) and fundamental
(economic growth, profit growth, expansion plans, earning re-ratings) parameter
suggest that correction will not be deep. 17100 on Sensex and 4950 on Nifty is very
strong support, and I do not think that they will be broken. You may keep a ‘buy zone’
when the Sensex lies between 17500- 19000. But, stocks like RIL and Tata Elxsi could be
accumulated even at these levels, because the correction may be delayed.

3) Category 3: ‘A typical retail investor’- Those, when incurred in heavy losses in the last
bear market, promised themselves that they will come out from this market and will
never ever return.

It seems that you are not made for stocks. Peaceful life is more important for you than
trying your ‘luck’ in stock markets. I would recommend you should keep your promise
and get out of stocks. You may invest through mutual fund or ULIP. To further reduce
risk, you may opt for SIP (Systematic Investment Plan- fixed amount decided by you will
be deducted from your account and invested in the underlying mutual fund or ULIP).
But, invest for long term- for 5 years at least, choose the fund manager carefully and
relax. Do not watch day-to-day NAVs, trust them and sleep peacefully.

Hope the question- could the market fall substantially from these levels, have been answered
implicitly. Explicitly speaking, 10-15% fall could trigger-in without giving us chance to react. We
have to be ready to digest it. If one can not digest it, one should get out of it. Period.

As the Indian economy is growing at full throttle, and although on short term parameters- like
PE ratio, valuations do look stretched, long term parameters- like price-to-book-value ratio or
dividend yield ratio, are well around their long term average values. On 20K Version-1 (Jan
2008), the market was euphoric- very risky and precarious, but 20K Version-2 (today) looks spicy
and delicious, but not too hot to burn the mouth!

Be invested, as the party abhi to parvaan chadhni shuru hui hai. And is expected to last for
another 1-2 years.

Regarding the gold, although it has reached and maintained 19K plus levels (contrary to my
logics!, as they say for any bubble it is very typical to extend it rally near its last legs of journey), I
still think it is in the bubble and may stagnate at these levels from middle to longer term
perspective. It may even cool-off 10-15% if the inflation is contained and the global economy
recovers more strongly than the estimates. I will not invest in gold in 2010-11, and may consider
in 2012-13.

Happy Investing! Enjoy an early Diwali aatishbaazi at Dalal street!

-Ayush
October 12, 2010

Hi,

With the market staying above 20000/ 6000 for Sensex/ Nifty, one can take some comfort. As I
said in the last communiqué, 10% fall could be triggered without much effort. Also, the said fall
could be delayed by few months, if the FIIs continue to pour money at this pace. I.e. it is
perfectly fine if the market rises 10% and falls 10% in the next 1-2 quarter.

Confused! Exactly this is the state of affair at the Dalal Street! Confusion looms over the
veterans of stocks. Economy is looking fine, the bulls would argue; but, the rise was sharp, and
should be followed by a fall, bears would contest! Instead of analyzing what could happen
(which is beyond our control), let us strategize what will be our line of action (which is more in
our control).

Scenario 1: The market rises another 10%.

If it rises steadily, I will start selling steadily; if the pace is sharp, I will calculate the next
resistance zone and sell in batches, just below these points. In any case, I do not indent to sell
more than 15-20%.

Scenario 2: The market falls 10-15%.

From present calculation, 18500 (medium and could be breached if the European problem or
such events reappear) and 17300 (strong and unlikely) are the support zones on Sensex.
Therefore, 19000-18500 is my buy initiation trigger, which could be followed up to 17500. I will
arrange some cash if the market breaches 19000 mark on closing basis.

Scenario 3: The market, like major part of fist half of this calendar year, moves sideways, i.e.
within 19000-21500 range.

The slow and steady reshuffling of portfolio will continue to optimize the opportunities.

Those who are looking to invest at this juncture could track and buy these stocks-

1. RIL- 1000, then 970

2. Reliance Media (RELMEDIA)- 265, then 235

3. Nagarjuna Agrichem- 210-220

4. Graphite- 96, then 90-92

5. Jaiprakash Associates-
 6. Punj Lloyd- 115-120

7. Opto Circuits- 290

8. Reliance Infra- at near 1000-1020

9. OnMobile- whenever it pauses.

10. Tata Elxsi- 265, 245

11. Yes Bank- 310-320

I must repeat that Opto, OnMobile, Tata Elxsi and Yes Bank were my favorites and has given me
decent return too. But they continue to remain good even at these levels. So, someone who is
about to start building portfolio, at this juncture, could buy 2-3 of them. Also, RIL has remained
an underperformer during last year, so, it too is looking poised for a decent hike. Structuring the
portfolio in this way is recommended, since RIL will give strength to your portfolio, while the
aforementioned midcaps will be the growth drivers. If the present scenario look too risky, you
may start accumulating them at slow pace, but don’t wait for correction, as it may get delayed.
Remember, staggered buy is a try and tested strategy; it reduces the timing risk in short to
medium term.

These could be sold if they rise more than 20% or at the mentioned price points-

1. RCOM- 187, then 196

2. Reliance Power- Above 175

3. Unitech

4. DLF

Wish you a wonderful and prosperous Navratri!

Happy investing, as always!

-Ayush

Dec 10, 2010

Hi,

After long time, the country and its media are flooded with scam- on after another.
Commonwealth scam, 2G scam, Adarsh scam, price rigging scam, kick money to bankers scam,
‘X’ scam….’Y’ scam! The list seems growing bigger by each passing week.

From a confident Diwali, we are bracing ourselves to probably a scary but not a dim
Christmas. The indices, represented by Nifty and Sensex are quite stable in percentage terms,
but most of the broader markets (mid caps, esp. realty and banks) are in a definite downturn.
Every mid/ small company is being looked with suspicion, irrespective of their track records.

For me, who has invested more than 40-50% in these midcaps, the first question is whether this
immediate downturn could turn into a well defined bear market for these companies?

I don’t think so. In fact, as written in my earlier mails, I am looking to augment my portfolio with
some of these to avail the opportunities thrown by the scams. I must accept that my lens to
view these companies has been made more stringent.

Next question in my mind is- when to start pressing the buy button?

As per my study of the market, it is impossible to time the market exactly. However, we can try
to nearly optimize the buys. Earlier, I was waiting for the Nifty to crawl down below 5650-5600
to initiate the buy. But since the individual stocks have fallen to lucrative levels, I have already
started buying, albeit in small tranches. Also, the last rally was fueled by FIIs and FIIs book profits
in December. They mainly return by Jan-Feb, after analyzing the quarterly results. So, Dec itself
could be the opportune time to infuse some cash, which, if all goes well could be taken off in the
pre-budget rally.

On the economic front, the inflation is still strong, but some signs of its reductions are being
felt. The GDP is galloping at full speed, with 8.75% projection. The next capex cycle is yet to pick,
but industrial growth is good.

In simple lingua, the economic signals are mixed with definite positive bias.

I would buy these, in that particular order of preference-

1. Yes Bank: below 300

2. Opto Circuits: below 260

3. Tata Elxsi: 242 to 258

4. OnMobile: 250 to 270

5. Reliance Infrastructure: when it pauses

6. JP Associates: when it pauses

7. RIL: 940-950

8. RCOM: below 125

And regarding the scams, every economy which is in exponential phase of growth (transition
between developing and developed), is typically grappled with some scams. But the situation
gets better once the transition matures. I do not think these scams would be allowed to derail
our economic train, as far as India is concern. The news flow usually starts fading in a month or
once the things seem to be stabilizing.

Happy investing, as always!

-Ayush