Red....

That's all that the markets are seeing. Partly to blame for this are global cues, and partly the growing strength of the Left parties and that the UPA has made all the wrong noises in the past few weeks:

1. Regulation of sugar prices
2. Regulation of cement prices
3. Regulation of prices of around 200 drugs, as opposed to an earlier proposal of 70.
4. The Left's demand for the re-introduction of the long term capital gains tax and dividend tax, thus hampering investment in the capital markets
5. Growing uncertainty about the quota system
6. Kamal Nath's proposal of implementing job quotas in private sector enterprises
7. Impending increase in fuel prices, resulting in an overall increase in cost.

To put it simply, the government is planning to increase overall costs and reduce (and regulate) prices that'll kill profitability, in line with the Left's thinking that businesses should all be non-profit, and the government should decide what to do with the return on income. Not to forget Nilotpal Basu stating that there should be no family based succession. They want the bureaucracy will wield greater power, and consequently the ministers and MP's. A step in the wrong direction.

Perhaps some significance can be accorded to the fact that the UPA government has turned two today. This succession of falls doesn't augur well for the economy. The morbidly negative could see this as an indication of a deflationary trend, and a fall in consumption demand. The RBI increases liquidity and lowers CRR or Bank rates. With the Left weighing in on the government for the pensioners, that's also highly unlikely.

I've been in the market since it was at 3000 levels a four-five years ago. And 300-500 points here or there don't bother me - I'm in it for the long haul. I don't believe in "savings" because they don't take inflation into account, and are not really profitable. In fact, I've been quite happy in bearish markets; my first thought is - what should I buy? Still bullish in the long term, I invested in ITC on Friday because I saw it at 300-400 in the next two to three years. Now, with a 1111 point fall and trading stopped, I'm a little sceptical, but I still see it recovering. But a 1000 points is a 1000 points, and it spooked even me for a bit. For me, I'm close to Rs.20 a share in the red with ITC (40+ at one time), though almost everything else is still in the green over the long term. I've only bought into companies that I'm comfortable with. Trading requires too much attention, too much time.

The real problem is - the stock markets move more on emotions than logic. And a lot of people would have gotten scalded, and would be looking to take their money out. As they say in hindi - doodh ka jala, chhaachh ko bhi phook phook kar peeta hain (a hindi version of once bitten, twice shy)
5 Comments:
Blogger whitelight said...

Working in a brokerage firm in bombay could be such fun- I had never imagined. The day the indices saw the lower freeze, one should have been in the dealing rooms. Boy! panic was staring right into our faces. The one hour when the trade was suspended-man it was something. People were expecting the indices to hit the second freeze. Fortunately that did not happen, otherwise the ship would have sunk. We were staring at a huge payment crisis. There would have just been no buyers. Imagine HLL having no buyers!!!

If you trade in futures & options I am sure you would have taken a huge hit, like I did. But then there was time when the future had gone into a huge discount on 22nd. I was able to cut my losses by half by going in for cash-futures arbitrage.

Keep on buying in small lots. And ITC is a great company. ITC futures have already got me 40,000 in the last two days. Buy on every dip. I am long on ITC cash from 120-130 levels and have been buying during the recent correction.

May 26, 2006 4:36 AM  
Blogger whitelight said...

The problem with the the retail investors is the they always buy stocks which their uncle had said would double in next two months. The perception that the markets would never fall was the other reason. When I went long on Gujarat Ambuja futures I had hedged my long postion by half by going short in the cash market. But there were lots of people who were so heavily leveraged, and all of that was completely naked position. Imagine having huge naked position @12500 levels. A market with a P/E of 21-22!!??? I had hedged my portfolio by going short on Nifty @ 3560. So net-net, I am relatively better than lot of people. But yes still in red on my trading position. Had some cash so i have been shopping heavily these days.

May 26, 2006 4:51 AM  
Blogger whitelight said...

Cutting your losses and getting out is a very prudent trading strategy. But for long term, stay put(especially if you have blue chips). The India story is very well intact. Morgan Stan expectes 19-20% FY07 earnings growth- which is superb.

You must be aware of the 1987 Dow crash when it tanked 24% in a day!!!! there is just one lesson from that-people who sold were sent to the cleaners and who held on to their investments and systematically invested again made a fortune. because from that day Dow grew seven times until 2000. a 13 year secular bull run. something i believe Indian market would see too.

May 26, 2006 5:48 AM  
Blogger Nikhil Pahwa said...

Oh, I don't have that kind of time to start hedging. Playing in the futures and options market requires an insane amount of time, and I'd rather be the dumb and stubborn long termer and make my 40k over a year or so. And, I don't take financing and trade with my own money. I play it safe.

The only risks I do take are fundamental, long term, contrarian calls - Ranbaxy at 367 and Sail at 72 being cases in point.

I wanted to exit Kothari Sugar (a short term, 3 month purchase), but I had no buyers.

A market PE of 21-22 still seems palpable to me; the interest rates in India are still comparitively high and if I remember correctly, the developed markets trade at 26-28 PE on low interest rates. A drop in the interest rates, and you'd see the prices rise.

My portfolio is divided into three distinct categories - the 'for a lifetime' holds, the contrarian calls and the short term. The first two are only blue chips and PSU Infra. The last set varies. But in any case, I don't invest for less than a month, ever, because of which I'm unaffected by most inordinate blips.

I learnt my lesson during the KP days of 2001, where I made some very hasty, tip based, budget dependant investments. A lesson which most of those who've gotten in over the past three-four years are yet to learn.

I was actually urging the market to tank further so that I could buy into more blue chips at a cheaper price. So while my day-trader friend had his head in his hands, I was grinning. :D

I'm just too risk-averse to day-trade or attempt F&O. I will probably take some money out of the markets in a couple months and park myself at the brokers so I can learn something about F&O- maybe lose a little and learn a lot.

May 26, 2006 6:34 AM  
Blogger whitelight said...

Do not wish for a further slide as lots of FIIs who have enterd at 9000-9500 levels would be staring at their stop losses. If that gets triggerd we might even see 8000-8500.

And F&O is not that time consuming. Have a set target and stop loss. If you have a view on a stock for the next two months, it is great.

May 28, 2006 9:11 PM  

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