Will this mean a US slowdown? In the near term (1-2 years) a US slowdown will result in more business for IT stocks, though dollar weakening is likely. Crude will come down in price if a recession strikes. Yet, other than financials, most US companies are reporting good and strong earnings, so I'm not sure there's a cause for a panic or fear.
What does it mean for India? Honestly, very little. India only supplies low cost goods to the US and if the RBI is able to keep the dollar-rupee equation sort of steady, exporters won't perish. Secondly, flow of capital will increase into India but only after three months or so. India has problems of its own - high interest rates, upcoming elections, oil price insanities, regulatory hurdles and controlling inflation. These are significant for us, probably much more than a US recession.
Today's been a down day - a 100 points on the Nifty futures - but I think it's a sign of the days to come. The rallies will be sharp, and the falls will be dramatic. And one day there will be a big brutal fall because of some pinpointed reason like elections, or someone died, or someone thought someone died or someone thought someone broke a toenail. It can be flimsy or it can be big; the actual reason does not matter - the problem is: we're standing on a very shaky floor. We're looking for a reason, any reason, to fall.
Volatility is horrendously bad for a regular trader, so I'm going to cut some of my trading - in fact I might take a call only in the last 1/2 hour of trade. I've already cut down some positions - L&T, Reliance Capital and some Sintex - and I will likely cut more if my stocks don't like me.
What's important now is to not panic and to expect the fall on a regular basis. Everyone thinks this market will bounce back to Nifty 6200 or more - and yes, it may. I think a move like that will be extremely short lived. I'll lose my first 10% - I have no problem with that - but I will try and cover any further falls.
Am I predicting the beginning of a bear market? I don't know, can't predict that much. But it's the beginning of the end-game, and like in bridge, this is where most of the strategy lies. Don't panic, think hard, and keep a very cool head. Remember, you only need to ensure you can live to make your profits back. No over leveraging. No instant booking of losses - wait a while, even if the stop loss is breached. And buy where you see value; this is the time value is important. Value is not "this stock was 300 Rs and now only 50!" - that's a stupid argument. Value is a stock you don't mind holding for two years or more, even if in those two years the stock market drops 40%.
As usual, I'm happy to be proved wrong. I just don't like the signs right now, and I wanted to say so.
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>I would like to know your opinion about Hindustan Uniliver at the present price. Any comments?
J Balachandran
11.02.07 at 2:30 AM
>Dont think this is the beginning of the end game.
It is now very clear that FED’s main agenda is to pressurise the Chinese to float the Yuan. By depreciating the Dollar, Chinese companies are loosing pricing power. It will be interesting to see how the Chinese Government defends it’s peg. In any case, near term slowdown in China and consequently Asia (India) is not possible (at least till the Olympics end)
So one can be long till next summer.
11.02.07 at 4:31 AM
>bala: HUL had bad fundamentals, and ever worse technicals. There’s no momentum, no strength and no upscale in earnings. I’d say wait – if this continues the stock will move down further.
anon: I really hope what you say is true, and fundamentally it does look right. But the movements in the market are pointing to a reversal – it could be short term, i.e. back upin three months, or it could be longer. The SEBIs P-Note issue and RBI’s CRR tightening have only delayed the big day, it seems – I thought we’d have an easier ride, but the market stats say otherwise (too much action in certain stocks, esp. in futures)
11.02.07 at 5:36 AM
>The milk never boils over when you’re watching it.
Everyone and his uncle is calling a top/bubble.
There’s too much skepticism yet for this market to fall.
(disclosure: long US equities)
11.02.07 at 5:50 AM
>Technically we have not made a double top. Though the valuations appear rich (forward P/E >21), still one can and should ride the bubble.
FIIs are well known for taking the markets to dizzy heights, if history is any guide. Japan markets at it’s height commanded 40% of world’s market capitalisation (P/E of 100)
So no need to worry as long you keep strict stop losses (may be upto 200 dma) or 10% below your purchase price. It is indeed true that Indian markets are shallow and only a few stocks make bulk of the Index. But for a trader this is not relevant.
11.02.07 at 7:22 AM
>P-Notes is a non issue. Already Singapore Exchange is emerging as secondary Indian Stock market for NIFTY. They have double taxation treaty with Mauritius and can easily bypass Indian restrictions.
11.02.07 at 7:38 AM
>Perhaps I’m wrong here but I see TV as a reasonable indicator of public sentiment, and the feeling there is: it’s only a temporary downturn, we will recover.
Anon2: Yes we probably need a double top, though there have been instances of serious falls without them. Valuation wise I’m not really worried because valuation didn’t matter when it went up like this. Trading wise, only momentum has mattered, not even pure technicals, so a double top may not be significant.
Anon3: Nifty trading on singapore is good, but the bulk of inflows into p-notes were into single stock futures, which aren’t traded elsewhere. Only thing that happens is that the NSE loses money :)
11.02.07 at 8:32 AM
>Arpan here Deepak.
I would like to understand 2 fundamental things from you:
1. Valuation wise, some quarters of the market like power, utilities look overheated. Look at BHEL and L&T valuations for e.g. But frankly stocks like Reliance (yep) and Infy still look reasonable given the future scope. So yeah, it may go down, but how much? 10%, 15%? Worst to worst case 16k? Clearly, if you are predicting a retrenchment to 12-14k let us know since this calls for desperate measures.
2. I have senior family members who have a reasonably large sized mutual fund portfolio (10 Lakh+) and it’s their retirement money (still 4-5 years to go). What’s your advice for them? They don’t track $/Yuan and frankly have no idea of oil in $ rate. They’ve made good profit so far.
I know these are complex questions, take your time to answer these please.
11.02.07 at 2:08 PM
>Hi Arpan:
1) Valuation wise: yes, there’s value in certain stocks. Certain sectors which look overheated may not be – for instance L&T, even at this level is NOT overpriced. It’s got a forward P/E of about 40, and it’s just shown a 100% growth, a 50,000 cr. order book and some absolutely fantastic delivery skills.
I don’t know where the market’s going – heck, if I knew I’d be extremely secretive about it and book my round-the-world cruise. It remains to be seen what happens – this “end-game”, like in Chess or Bridge, can take an inordinately long time!
There are two things that can happen – a slowdown, like Jan 2004 to May 2004 and then the big crash, or a sudden dip (and we will always recover from a sudden dip).
To me it seems like this – results are down on auto, and the next quarter will be hard on textiles/IT and the quarter after that, banks. How the market reacts, one can’t say – but I think if we have a sudden fall then we can take such result pressures in our stride. if we DON’T have a sudden fall to begin with, we’ll probably hang around here and slowly go down till one big fall day.
6200 Nifty or 21,000 Sensex isn’t impossible, and although 12-13 K looks tough from here, I don’t think I can write it off – it will depend on what happens that will take us down.
2) Retirement money – if the ONLY money they have is in stocks, please tell them to go balanced (50% stocks or less) or at least long on fixed income. Book deposits, FMPs or bonds when we’re getting 10% deposit rates. Now 10 lakh is not much as a retirement saving in most cities here, so perhaps you’re talking about only the part that’s in stocks. If you’re already balanced, stay with it; Five years is enough time for us to recover even if we fall.
11.02.07 at 2:22 PM
>Arpan here and thanks for the response. Looks like you have agreed that over a 5 year period a sensex base of 20k is reasonable. In the short term, with oil at 100, interest rates are for sure not coming down although they may stabilize at these levels. This means real estate, bank, cement, auto are all going to be hit sooner or later. Are you recommending a total out of sector plan on all these or latch on to good low PE stocks that have a good story ahead? What about FMCG?
11.03.07 at 4:51 AM
>I need your advice on praj industries (bought at 216) and GAIL (bought at 410) 2-3 weeks ago. Since then both are falling. Do I need to book losses or I have to wait to go up.
Thanks
11.03.07 at 6:39 AM
>Usually what starts in the institutional investment world eventually is pushed down through the bank channels, investment platforms, broker-dealers, and retail clients.
Regards.
ForexCTAs
11.05.07 at 6:09 AM
>Hi Deepak,
An unrelated question regarding Suzlon. I plan to exit Suzlon, which i bought almost a year back. During this quarter result meeting, they announced about the stock split. Should i wait for stock to get split so that i can write off some STT on other stocks sold within a year? Is that possible?
Thanks in advance.
-Sushanth
11.07.07 at 11:29 AM