12 Month Update

One year is over since I started writing about the markets. I still have lots to tell so I will continue for some more time.
The 1 year returns of the general stocks are nothing to boast about. They are underperforming the markets by 8 %. But the value picks of January are out performing the Nifty by 21%. Let’s talk about Beta today.

Have you seen how the US markets behave? They hardly every fall too much to rise too much. While the Asian markets, especially the Indian Sensex jump around wildly. Well that is Beta for you. Indian Markets are with the highest Beta amongst the Asian Markets. So while the US markets maybe down only 30% from the top the Indian markets maybe as low as 50-60%.

Another problem with the Indian markets is that there is very less depth in the market. Meaning? In the developed markets there are 30-40 very good stocks in every conceivable sector where as in India there are hardly 3-4! This is responsible for more volatility. When big investors want to liquidate there are only these 3-4 companies that they can sell. And when they do the whole markets come crashing down like a house of cards.

One more problem is the number of investors in the Indian markets. With only 2% of the Indian population investing in stocks, making the Sensex shoot up or down is relatively easy!

2 things that can make the Beta come down in Indian markets are
1) more penetration and
2) more good companies getting listed.

There is another aspect of Beta. As all stocks are compared with the Index (Beta = 1) you should never panic or be overjoyed when your portfolio under performs or out performs the index. That is nature of the beast. Unless you actually buy the nifty/Sensex your investment will never track the index. You can never actually make money in low beta stocks. The trick is to but great companies like tata steel, SBI, etc. when they are relatively very cheap and wait for them to outperform the Index to sell.

Markets this week are down and I expect some more downside. I personally will be entering in a major way when the Sensex is around 12500. People can start buying now and go all the way down to 12500. Companies like Tata steel and Hindalco can easily give returns of around 80-100% in the next 2 years.

Happy investing!