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Aug 2007 Strategy
Aug 2007 Strategy
Hope you have made reasonable profits from the last (Feb-March) corrections.
We are again in correction mode, due to changed global scenarios. And as expected, I am
busy analyzing the fall, crunching some numbers and studying the charts.
After analyzing the causes and triggers of the recent market meltdown, both domestic and
global, and their impact on various sectors, I am assigning ranks to various sectors as
follows-
Rank Sector Total Phase Phase 2 Phase 3
weightage 1(weightage
and stocks)
1 Telecom 16 6(Bharti, 6(Bharti, 4(Bharti/
RCom) Rcom, Rcom
Idea) Idea/VSNL)
2 Upstream Oil 13 6(RPL, RIL) 5(RPL, 3(RPL,
Companies(Exploration RIL) RIL, Cairn)
& Refinery)
3 Banking & Finance 13 6(SBI, Yes 5(SBI, Yes 2(SBI,
Bank) Bank) IDFC, J&K
Bank,
RCap)
4 Real Estate 11 4(DLF) 5(DLF) 2(DLF,
Unitech)
5 Capital Goods, 11 5(Punj Lloyd) 4(Punj 2(Punj
Construction Lloyd) Lloyd,
BHEL)
6 Healthcare 8 0 3(Fortis 5(Fortis
Healthcare) Healthcare)
7 Pharmaceuticals 8 3(Ranbaxy) 3(Ranbaxy) 2(Ranbaxy)
8 Power 7 2(REL) 3(REL, 2(REL,
NTPC) NTPC, Tata
Power)
9 Gas 7 2(Petronet, 3(Petronet, 2(Petronet,
RNRL) RNRL) RNRL,
IGL)
10 Media 6 2(ENIL, 2(ENIL, 2(ENIL,
Adlabs) Adlabs) Adlabs,
NDTV)
Total Weightage 100 35 39 26
For low risk/ low return, we can maximize the diversification and invest in all sectors.
For aggressive investors, only 3-5 sectors could be chosen, say top five.
Also, please note that I think it is highly unlikely that phase 3 will be executed at all, and
great probability that the fall be reverted between phase 1 and 2 or after phase 2. But I am
going to buy only 3/4th of fund and will sit on 1/4th as cash. So that in case May 2006
scenario repeats, opportunity could be grabbed.
I am cynical about following sectors-
IT- Appreciating rupee and threat of US recession.
FMCG- Slow rise in price and inflationary rise in raw materials.
Oil marketing companies; say IOC, HPCL, BPCL and IBP. Coz of mounting
losses and freeze on price hike.
I am not going to bet on these three sectors.
I have not studied other sectors, as I think there are ample of opportunities for these 12-
13 sectors.
Regarding Sensex, although it is difficult to predict, but I think that the bottom must be
formed between 14000 and 14600. So this band could provide ‘buy’ trigger for phase 1 in
our plan.
Regarding target prices, the phase 1 target prices will be communicated in 2-3 days, but
be prepared, as some sign of stabilization in global markets is appearing.(As I said in my
last mail.)
We can keep an eye on FII, US economy and Fed. I am open for further suggestions and
discussions.
At last, the caveat- Equity investment and its analysis are probabilistic in nature, so there
is a bit of risk and uncertainty in every strategy. But India is in long-term bull market.
Happy investing!
-Abhi
Hi,
After the chart analysis of our sector-wise list, the purchase list with price band for
phase1 is ready.
S.No. Name Price Band Risk
(Buy)
1 Punj Lloyd 260-280 Medium
2 Reliance Capital 1150-1200 High
3 Bharti Airtel 840-860 Low
4 Reliance Communication 510-530 Low
5 Adlabs Films 450-475 High
6 ENIL(Radio Mirchi) 440-460 High
7 Yes Bank 180-185 Medium
As all of them are for medium to long term, no sale (price) target could be given.
Also, regarding timings of purchase, I think as the market is very volatile these days, only
those who have guts to hold some losses in short term should buy. Rest could wait, but
waiting could be costly if the market makes quick pull back.
I am starting my purchase, but only on dips.
Good luck!
-Abhi
Hi everybody!
I am back with another mail of stocks strategy. This time, its sale strategy.
Due to some greater responsibilities at the office, I cant give you price targets for sell.
But what I am trying is to figure out whether this rally, esp. after the fed cut its monetary
rate, is sustainable? What band of the Sensex will provide triggers for initiation of sell?
On Friday’s closing, after analyzing the PE ratio, I think the Sensex is rightly price. But
more than 2/3 of the time, the mood of market is rather skewed; it behaves as too
pessimistic or too optimistic. A month earlier, it was too pessimistic. This time its too
optimistic. These mood changes give rise to the pendulum behavior. The essence of
analyzing any fall or rally is an orderly approach to find a band from where the reversal
of the direction is likely.
As I said earlier, the likely band for last (July-Aug) fall was 14000 to 14400. This was
almost held. The Sensex bottomed out at 13800. Not a bad analysis, in probabilistic
calculations for speculation.
This time, the advance tax numbers are good. So I think, results for Jul-Sept quarter will
be around expectations of the market. They (result declarations) start pouring in from
second week, usually starting with Infosys at 13th of the month.
Regarding liquidity, the global liquidity is very encouraging, esp. after the rate cut by the
Fed.
But the pace of rally is giving rise to some sort of uneasiness.
Keeping the above three factors, I am recommending to hold for another week. Then, if
the Sensex keeps its pace, it would have crossed 17000 marks. Don’t worry. If it takes
side ways, i.e. pausing, wait for the results. In this case last week of the October.
But if the Sensex breaches 17500-17700, I would prefer sale. At least half or a third of
the portfolio.
For individual stocks, sell risky stock such as Reliance Capital, ENIL (Radio Mirchi),
Adlabs, VSNL etc. early. And stay invested in solid stocks, e.g. RIL, SBI, and Bharti and
Reliance Communications, to some extent.
Regarding much hyped RNRL, the company’s future is very much dependent on two
factors- court case with RIL and city gas distribution license for Delhi and Mumbai. Both
are external and beyond prediction. So although it has given a spectacular return, and
may still give good returns, I have not invested in it, and I am not going to buy it before
its business model is validated. But its not a bad stock. So invest at your own.
For convenience, contents of my previous mails have been appended.
Happy investing!
-Abhi
.
Hi everybody!
I am back. As the market breached 18000 mark, it became illogical, and unstable. I
churned most of the stocks. This rally was fueled by FIIs, pouring 1500 to 3000 crore
every day. They didn’t stop, so the market threaded higher and higher. 19000 was
breached in 4 sessions. Last leg of every bull run is surounded by sheer euphoria. The
more my analysis(momentum of rise) went wrong, the more I was convinced that market
is headed for a good fall. It was only a matter of time before the FII money stops. I could
not assess how much money they have allocated for India. But it cant be unlimited. For
every positive triggers there was some rise, but negative factors were discarded. I thought
a heavy negative trigger would have potential to break this rally. This trigger got fired.
This time from SEBI. Govt is trying to curtail some hot FII money. So, though SEBI, it is
phasing out the participatory notes, PNs. Don’t go into the nitty gitties of these PNs. Only
understand that heavy selling by FII is going to happen today and if the govt don’t
clarifies, the selling will continue for some time. Might be some weeks, some months.
I will try to analyze the situation. The finance minister is expected to clarify at 10.30am
today. Lets see.
But if the market opens with ONLY 600-1000 points down, book all profits. Even if you
have notional losses, SELL. In case of heave losses, do whatever you like.
Fortunately, I have my cash ready. But I am going to wait for some days to understand
the events and assess their impacts.
But SELL EARLY is my mantra for this market.
-Abhi
Strategy-
I think scenario 1 and 2 is more likely as compare to senarios 3 and 4. So I will wait for
fall. Assess how much is too much. Then make target buy list with target prices of
individual stocks. Once the market stabilizes and my buy prices start matching, I will
start buy, and buy at every dip, without fear that further slide could happen.
For those who are heavily invested(in terms of % of portfolio : cash ratio, and not the
total amout), I would recommed sale at every initial recovery. Continue sale till
settlement- next Thursday, if the stock prices fall drastically without giving you chance to
exit, stop selling. And arrange cash for next round of buying. If you have invested in
frontline stocks, all recommendations of mine are essentially frontliners, don’t bother
about mark to market losses. Don’t sale at loss. Keep faith in company, Industry and
Indian growth story. I don’t see any sign of bear market right now.
P.S.- This is only qualitative analysis. Quantitative analysis mail will follow, might be in
mid of next week or after settlement and result seasons are over.
-Abhi
19 Jan 2008.
Hi,
Hope you have invested in the RPower IPO. The subscription data says that the IPO has been
oversubscribed by 73 times. QIB(FIIs) portion 82 times, HNI(mainly large speculators) 190 times,
and retail 14.7 times.
The HNI indicator suggests that listing should be great, subject to the caveat that the market
mood on the listing does not goes to extremely cynical. Right now, the grey market premium is
320-350, i.e. one share of RPower is 'illegaly'/'unofficially' being traded at Rs 770 to 800/-. It may
keep fluctuating with the sensex, but the premium is unlikely to go fall below 200-240, even in
worst case scenario.
Regarding the chances of allocation, the retail portion is oversubscribed 15 times. The analysis of
similar previous IPOs data suggests that those who bid for 70-80 thousand(although paying only
around 1/4th) or more will get firm allocation of 15-18 shares.
So expect a profit of Rs 3000 to 5000, on conservative side.
The allocation is expected to be made on 31st Jan, and listing 2-3 days after allocation.
Although RPower's long term prospect looks good, the present price(gre market) is high, so I will
sell it on or within few days after listing. Could buy again once it stabilises.
Regarding sensex, it seems that it is being guided by the left(emotional) side of the brain. lately,
in the last few days, the right side is trying to take the control. I have no hurry to buy. As chances
of very sharp pullback looks bleak. FIIs are consistently selling, mutual fund are not buying much,
and friday data suggests that the retail investors' euphoria has been broken, at least for the time
being. Positive developments are expected by the Fed on 30th Jan.
Who knows,
Power On, vishwas on!
(R)Power on, Sensex on!!
The listing of RPower may trigger buget rally, if the global situation does not detoriates too much
further.
Abhinav Mishra
Reliance Technology Innovation Centre
3rd Floor, The Presidency Building
Sector 14, Gurgaon
Ph. 0124- 303 1566
Cell – 9313381555