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!

11 Month Update

My last interim update of May 20 has captured most of the up move. The euphoria of the newly elected govt. is still there but most importantly there is lot of liquidity on the sidelines. Even if the euphoria dies down in the next 2-3 months the liquidity might not. Remember Mr. Market is a “manic-depressive” beast. In Oct and Mar it was in its depressive phase and now its in its manic phase. This phase might push the sensex up to 16-17K in the short term. The valuations of blue chips are already far ahead of their earnings for this year. Is that to say that markets will crash to 10K levels? Not likely but a decent correction of 15-20% is always on the cards. I personally feel too much is being made out of the UPA govt.’s ability to deliver. Remember the congress still follows a “socialistic” policy and Trinamul and DMK are as bad or good as the left. There are already rumblings of not so good times to come for Mr. Singh.
The real economy is still struggling. Exports are in terrible shape and auto sales are again slowing. Monsoons are a bit delayed. If all the negatives come together , I will be a happy man as I can bring out my shopping bag again. There are still quite a few mid-caps available at decent valuations but I would prefer to wait. This year MIGHT just be the year when the monsoons play truant after almost 6-7 great years.
Budget , 1st quarter earnings and monsoons should be out of the way by July end so I would wait and watch for the moment.
This time is also good to check the passive income coming in the form of dividends.

Note – my value picks are beating the index by a whopping 45% and if you had invested X amount on Jan 25th, now you would be sitting on 2X+! It might not be a bad idea to book some of the profits in companies where you have made more than 80-100%! Remember unlike the US , Indian stock markets are a high beta market and you have to book profits once in a while. Please also understand that this is a virtual portfolio without any actual money being invested. I myself have not done as well as my virtual portfolio.