15 Month Update

As per my last month’s posting, the scenario 1 is being played out with the sensex moving around in a small band. The result season is here and its best to wait for they to get over before taking a call. If the average bottom line don’t show a 30% YOY increase , then we are in for a decent correction. Most of the blue chips are trading above a 26-27 P/E and business is not actually roaring at the moment. People are just making up for the depleted inventory and human resources. Once they are up to decent levels not much upside can be seen in the short term.

This does not mean opportunities exist. Airtel is a classic example of what Buffet would term as “stock beaten down by an irrational market”. It’s biz is best in the vertical, great management and available at a very cheap price. There are others also but not many blue chips. At these levels you might want to exit any bad eggs in your basket. If at these levels also they are at a major loss ( say 40-50%), its best to exit these.

My value picks below continue to beat the nifty by 58% !

14 Month Update

Sensex at 16K almost 100% return from Oct 2008. The question that people ask me most now is – Where to from here ? For long term investors who are already invested the answer is very simple , stay invested! Going forward ( for the medium term ) I can see 3 scenarios
1.The Sensex moves listlessly in a small band of 16-17K for the next 3-4 months.
Justification – The market now has moved ahead of fundamentals and will not do much till the fundamentals catch up and developed markets also inch up so that Indian exports become more healthy.
2.The Sensex runs up sharply till 18K and corrects to 14.5-15K levels
Justification – People pump in money thinking that they have missed the rally and jump in seeing no correction coming soon. Then around 18K when they find valuations much ahead of fundamentals the people become skittish and pull out money.
3.The Sensex slowly inches down and starts moving up around the end of the year.
Justification – FIIs slowly start pulling out money from Emerging Markets and start deploying it in Developed markets, seeing better value there. The decent will be slow because of the huge amount of liquidity sloshing around and DIIs/MFs maintaining their buying.

Personally I believe the 2nd scenario having a 60% chance and the other 2 having 20% each. Whatever the scenario if you are sitting on 10-15% cash it’s a good thing. Just wait for an opportunity to present itself and deploy the cash around 14-15K levels. With knowledge of only the last quarter results now 14K levels can be justified. For us to justify levels of 17-18K the results of the July-Sept should also be good.

I enjoy the daily ride so I check the price of good stocks everyday. There is still value to be found in midcaps. They should give good returns in the next 12-18 months. For people who cannot stand the volatility, they can wait by the sides, enjoy Dashera, Diwali and Christmas and check the markets only in the new year.

Check the excel(updated as of yesterday) below you can make out that with decent stocks in your portfolio you can always beat the markets. My value picks are still outperforming the Nifty by 45% and the other stocks are tracking the Nifty closely.