| Alert Name: India, Bearish Alert Criteria: Stocks (Any Indian Exchange); Price at least 50.00 and below the 200-day moving average; Volume at least 10,000; Classic Patterns; Bearish; Pattern Duration at least 25 days; Possible Price Move of at least 10%. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Alert Criteria: Stocks (Any Indian Exchange); Price at least 5.00; Classic Patterns; Bearish; Daily Events; Pattern Duration at least 25 days. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Which company has the potential to become next Infosys or Airtel or Suzlon or Praj? Visionary investors always search to find emerging giants which have the potential to yield more than 500% returns in 3-4 years. Many emerging companies generally get funding from PE players but still some companies opt for IPO route. If you pick the right stock, it will change your life forever. High risk and high return is the basic character of an emerging and niche Company.
Characteristics of emerging stocks:
1. These stocks have the potential to give exceptional returns if investors buy and remain invested in them for 4-5 years.
2. Risk is generally high as most of these sectors are in untested zone and converting ideas into viable businesses is a great challenge for enterpreneurs.
3. Some companies start with a good idea but failed to execute them in time. Don’t expect that every company will become another Infosys or Suzlon.
4. You should not look at balance sheets when you invest in them. That’s why value investors generally do not buy emerging companies. Learn to see bigger picture before investing in them.
5. These stocks are generally bought by foreign investors and highly educated investors which are now staying away from Indian stock markets. These stocks generally fall heavily in bear markets and will command very high valuations in bull markets.
6. These stocks are meant for patient investors who have vision and ability to stay invested for long term.
Stocks in emerging sectors:
1. Solar energy:
A. XL Telecom and Energy:
B. Webel SL Energy:
C. Moserbaer: This Company is an emerging giant.
D. Tata Power: Through Tata BP Solar.
E. BHEL and BEL: Benefit from solar boom.
F. ONGC, BPCL, HPCL, Lanco Infra, Reliance Industries, Reliance Infra and Videocon: Mixed players.
G. Titan Energy:
2. Wind Energy:
A. Suzlon: Giant in this space.
B. Elecon Engineering: Mixed player.
C. Shriram EPC: Mixed player.
D. Indowind Energy:
E. Lanco Infra and Reliance Infra: may enter in future.
3. Bio-fuels:
A. Southern Online Biotech:
B. IKF Technologies:
C. KSK Energy:
D. Praj Industries:
E. Tata Chemicals, BPCL, IOC, and HPCL: Mixed players.
F. Sugar Companies: Benefit in future.
4. Electric vehicles:
A. Tube Investments: Reliance mutual fund is betting on it.
B. Electrotherm: leader in this segment and a mixed player.
C. Hero Honda and TVS Motors: Mixed players.
5. Water Management:
A. ION Exchange India:
B. Jain Irrigation:
C. Eureka Forbes:
D. Kirloskar Brothers, KSB Pumps and Kaycee Industries
E. Pratibha Industries, Hindustan Dorr-Oliver, IVRCL Infra, Subhash Projects and Thermax:
F. Bisleri and Himalaya: Mineral water players.
6. Waste Management:
A. Jindal Saw: Through Jindal ITF. This company may surprise analysts within 2 years.
B. Infotrek Syscom:
C. Subhash Projects and Management.
7. Mobile Value added services:
A. On mobile: Leader in this space.
B. Tanla Solutions: Cheap valuations.
C. Geodesic Information: Internet niche.
D. Tulip Telecom: Mobile networks.
E. R Systems: Mobile IPTV and IPLM Solutions.
F. Micro Technologies: GPS, Wireless Communications and Business intelligence.
8. DTH players and HITS Technology:
A. Dish TV:
B. Wire and Wireless: HITS Technology.
C. Sun TV, Reliance Communications, Tata Communications, Bharti Airtel and Videocon: Mixed players.
9. Logistics: This sector is not an emerging play but has huge potential.
A. Global Vectra.
B. Larsen and Toubro
C. Container Corporation of India
D. Sical Logistics, Gateway Distriparks and many others.
10. Contract Research and Manufacturing (CRAM): Not emerging sector but has huge growth potential.
A. Divis Labs, Dishman Pharma, Lupin, Nicholas Piramal and Jubilant Organosys.
Niche players:
11. Smart cards: Bartronics.
12. Animation: Compact Disc India
13. Astral Microwave: Microwave and MIC.
14. LCD panels: MIC Electronics.
15. Plastics: Time Technoplast.
16. Semiconductor: SPEL Semiconductor.
17. Gaming: UTV Software and Compact Disc India.
18. Education: Educomp Solutions and Everonn Systems.
19. Medical Diagnostics: Opto Circuits India.
20. Medical Research: Piramal life (high risk) is a safe stock than others.
21. Vaccines: Panacea Biotech, Biocon, Wyeth and GSK healthcare.
22. Nutraceuticals: Wockhardt, Plethico Pharma, Divis Labs, Merck and Dishman Pharma.
23. Drip Irrigation and Food processing: Jain Irrigation, ITC, Nestle, Dabur and HUL.
24. Power solutions: ICSA and KLG Systel.
25. Ratings: CRISIL and ICRA.
26. CNG: Nitinfire Protection and Everest Kanto Cylinder.
27. Seismic Tests: Alphageo.
28. Security: Honeywell Automation and Zicom.
29. Floriculture: Karuturi Global.
30. Agriculture and Crop protection: Rallis, Advanta, Monsanto, Kavuri Seeds, Syngenta, Bayer Crop, United Phosphorus and Tata Chemicals.
31. Poultry: Venky’s.
32. Farm Equipment: Jain Irrigation, Kirloskar Bothers, KSB Pumps and Mahindra and Mahindra.
Note: I am just giving the list of stocks but not recommending them as safe investment options. Readers should do research on their business models (not on balance sheets) and management before investing your hard earned money. I tried my best to prepare this list but errors are regretted. I am requesting suggestions from readers to make this list more comprehensive.
My investment strategy:
I use 25% of personal money to invest in these companies (but not investment offers money). I generally buy small quantities in good emerging companies and gradually remove non-performers or unviable business models. I gradually increase holdings in good emerging companies and niche stocks.
My investment duration: 3-5 years.
Short term investment idea: Tea stocks.
Tea companies will announce bumper results in this quarter. Some companies in Tea sector will report 100% increase in net profit.
Why Warren Buffett is a genius:
When all are struggling for money and looking for bailouts, Warren Buffett is accumulating assets in best companies at very cheap valuations. He knew that American economy will take some time to recover and so he is aggressively buying preferential stakes in multinationals like GE and Goldman Sachs. He bought 10% stake in China battery maker “BYD” which is developing technology for wind and solar energy. Every investor should learn some lessons from this genius called “Warren Buffett”. But current credit crisis has the ability to fool the geniuses like Warren Buffett. Why? No one knows anything about the severity and depth of current credit crisis. No one had any experience in dealing with such crisis. We will know the answers only in 2009.
Why Buffett is aggressively accumulating assets?
He knew that current crisis is a serious one but he knows that it is foolish to search for bottom. He also knew that companies are in desperate need for money. So he is bargaining hard to buy stakes at cheapest possible valuations for long term investment. Why companies are selling stake at such cheap valuations? “Buffett bought stake in our company”- that is enough for the companies to raise more money. Buffett not only brings money but also credibility to the company. Don’t forget that he is buying stakes only in fundamentally sound companies. But I am still suspicious about this Buffett step.
Must read: Thomas Friedman article on bailout package and Wall street-Main Street issue.
Economical status of the world:
1. America: In confirmed recession. We will know only in 2009 whether American economy will be in depression or not. Job losses and decline in auto sales are disturbing. 32% drop in Toyota car sales in America while Mahindra reported 25% increase in sales in India. See the difference!
2. Spain, Ireland and England: Definite recession candidates. Spain and England will see worst crisis in real estate sector.
3. Japan, European Union and Latin America: On the verge of recession. Economic crisis is gradually spreading to more countries– real worry.
4. India and China: Economic slowdown. India is the best country for investments but rupee weakness is a worrying point while fall in inflation rate and crude oil prices are positive signs.
5. Russia: Unpredictable economy.
Positive news:
1. Latest statistic: Inflation fell to below 12% levels and is now at 11.99% Vs 12.14%. Analysts expected 12.12%. Inflation number is a positive surprise but rise in manufacturing segment is a worrying sign.
2. U.S Congress passed $ 700 billion bailout package bill but American Economy lost 1,59,000 jobs in September. This bailout package is not sufficient to rescue American economy from crisis but may stabilise the financial system over short term if executed it properly.
3. October 17, 2008: Record date for 1:1 bonus issue of GMDC while November 6, 2008 is record date for stock split of Time Technoplast.
My Blog is growing on steroids:
Thanks to the readers for making this blog a super success story in just 7 months of its launch. See the Alexa stats below (Alexa stats are dated October 1, 2008). On an average, each visitor is reading 8 pages in the blog. My next target is reaching 50,000 Alexa rank by March, 2009.
Characteristics of emerging stocks:
1. These stocks have the potential to give exceptional returns if investors buy and remain invested in them for 4-5 years.
2. Risk is generally high as most of these sectors are in untested zone and converting ideas into viable businesses is a great challenge for enterpreneurs.
3. Some companies start with a good idea but failed to execute them in time. Don’t expect that every company will become another Infosys or Suzlon.
4. You should not look at balance sheets when you invest in them. That’s why value investors generally do not buy emerging companies. Learn to see bigger picture before investing in them.
5. These stocks are generally bought by foreign investors and highly educated investors which are now staying away from Indian stock markets. These stocks generally fall heavily in bear markets and will command very high valuations in bull markets.
6. These stocks are meant for patient investors who have vision and ability to stay invested for long term.
Stocks in emerging sectors:
1. Solar energy:
A. XL Telecom and Energy:
B. Webel SL Energy:
C. Moserbaer: This Company is an emerging giant.
D. Tata Power: Through Tata BP Solar.
E. BHEL and BEL: Benefit from solar boom.
F. ONGC, BPCL, HPCL, Lanco Infra, Reliance Industries, Reliance Infra and Videocon: Mixed players.
G. Titan Energy:
2. Wind Energy:
A. Suzlon: Giant in this space.
B. Elecon Engineering: Mixed player.
C. Shriram EPC: Mixed player.
D. Indowind Energy:
E. Lanco Infra and Reliance Infra: may enter in future.
3. Bio-fuels:
A. Southern Online Biotech:
B. IKF Technologies:
C. KSK Energy:
D. Praj Industries:
E. Tata Chemicals, BPCL, IOC, and HPCL: Mixed players.
F. Sugar Companies: Benefit in future.
4. Electric vehicles:
A. Tube Investments: Reliance mutual fund is betting on it.
B. Electrotherm: leader in this segment and a mixed player.
C. Hero Honda and TVS Motors: Mixed players.
5. Water Management:
A. ION Exchange India:
B. Jain Irrigation:
C. Eureka Forbes:
D. Kirloskar Brothers, KSB Pumps and Kaycee Industries
E. Pratibha Industries, Hindustan Dorr-Oliver, IVRCL Infra, Subhash Projects and Thermax:
F. Bisleri and Himalaya: Mineral water players.
6. Waste Management:
A. Jindal Saw: Through Jindal ITF. This company may surprise analysts within 2 years.
B. Infotrek Syscom:
C. Subhash Projects and Management.
7. Mobile Value added services:
A. On mobile: Leader in this space.
B. Tanla Solutions: Cheap valuations.
C. Geodesic Information: Internet niche.
D. Tulip Telecom: Mobile networks.
E. R Systems: Mobile IPTV and IPLM Solutions.
F. Micro Technologies: GPS, Wireless Communications and Business intelligence.
8. DTH players and HITS Technology:
A. Dish TV:
B. Wire and Wireless: HITS Technology.
C. Sun TV, Reliance Communications, Tata Communications, Bharti Airtel and Videocon: Mixed players.
9. Logistics: This sector is not an emerging play but has huge potential.
A. Global Vectra.
B. Larsen and Toubro
C. Container Corporation of India
D. Sical Logistics, Gateway Distriparks and many others.
10. Contract Research and Manufacturing (CRAM): Not emerging sector but has huge growth potential.
A. Divis Labs, Dishman Pharma, Lupin, Nicholas Piramal and Jubilant Organosys.
Niche players:
11. Smart cards: Bartronics.
12. Animation: Compact Disc India
13. Astral Microwave: Microwave and MIC.
14. LCD panels: MIC Electronics.
15. Plastics: Time Technoplast.
16. Semiconductor: SPEL Semiconductor.
17. Gaming: UTV Software and Compact Disc India.
18. Education: Educomp Solutions and Everonn Systems.
19. Medical Diagnostics: Opto Circuits India.
20. Medical Research: Piramal life (high risk) is a safe stock than others.
21. Vaccines: Panacea Biotech, Biocon, Wyeth and GSK healthcare.
22. Nutraceuticals: Wockhardt, Plethico Pharma, Divis Labs, Merck and Dishman Pharma.
23. Drip Irrigation and Food processing: Jain Irrigation, ITC, Nestle, Dabur and HUL.
24. Power solutions: ICSA and KLG Systel.
25. Ratings: CRISIL and ICRA.
26. CNG: Nitinfire Protection and Everest Kanto Cylinder.
27. Seismic Tests: Alphageo.
28. Security: Honeywell Automation and Zicom.
29. Floriculture: Karuturi Global.
30. Agriculture and Crop protection: Rallis, Advanta, Monsanto, Kavuri Seeds, Syngenta, Bayer Crop, United Phosphorus and Tata Chemicals.
31. Poultry: Venky’s.
32. Farm Equipment: Jain Irrigation, Kirloskar Bothers, KSB Pumps and Mahindra and Mahindra.
Note: I am just giving the list of stocks but not recommending them as safe investment options. Readers should do research on their business models (not on balance sheets) and management before investing your hard earned money. I tried my best to prepare this list but errors are regretted. I am requesting suggestions from readers to make this list more comprehensive.
My investment strategy:
I use 25% of personal money to invest in these companies (but not investment offers money). I generally buy small quantities in good emerging companies and gradually remove non-performers or unviable business models. I gradually increase holdings in good emerging companies and niche stocks.
My investment duration: 3-5 years.
Short term investment idea: Tea stocks.
Tea companies will announce bumper results in this quarter. Some companies in Tea sector will report 100% increase in net profit.
Why Warren Buffett is a genius:
Why Buffett is aggressively accumulating assets?
He knew that current crisis is a serious one but he knows that it is foolish to search for bottom. He also knew that companies are in desperate need for money. So he is bargaining hard to buy stakes at cheapest possible valuations for long term investment. Why companies are selling stake at such cheap valuations? “Buffett bought stake in our company”- that is enough for the companies to raise more money. Buffett not only brings money but also credibility to the company. Don’t forget that he is buying stakes only in fundamentally sound companies. But I am still suspicious about this Buffett step.
Must read: Thomas Friedman article on bailout package and Wall street-Main Street issue.
Economical status of the world:
1. America: In confirmed recession. We will know only in 2009 whether American economy will be in depression or not. Job losses and decline in auto sales are disturbing. 32% drop in Toyota car sales in America while Mahindra reported 25% increase in sales in India. See the difference!
2. Spain, Ireland and England: Definite recession candidates. Spain and England will see worst crisis in real estate sector.
3. Japan, European Union and Latin America: On the verge of recession. Economic crisis is gradually spreading to more countries– real worry.
4. India and China: Economic slowdown. India is the best country for investments but rupee weakness is a worrying point while fall in inflation rate and crude oil prices are positive signs.
5. Russia: Unpredictable economy.
Positive news:
1. Latest statistic: Inflation fell to below 12% levels and is now at 11.99% Vs 12.14%. Analysts expected 12.12%. Inflation number is a positive surprise but rise in manufacturing segment is a worrying sign.
2. U.S Congress passed $ 700 billion bailout package bill but American Economy lost 1,59,000 jobs in September. This bailout package is not sufficient to rescue American economy from crisis but may stabilise the financial system over short term if executed it properly.
3. October 17, 2008: Record date for 1:1 bonus issue of GMDC while November 6, 2008 is record date for stock split of Time Technoplast.
My Blog is growing on steroids:
Thanks to the readers for making this blog a super success story in just 7 months of its launch. See the Alexa stats below (Alexa stats are dated October 1, 2008). On an average, each visitor is reading 8 pages in the blog. My next target is reaching 50,000 Alexa rank by March, 2009.
MUMBAI: Domestic insurance giant Life Insurance Corporation (LIC) has raised its stake beyond 10% in a few blue chip companies even after the insura
nce regIRDA decided to impose a cap of 10% on the institution's investment in a single company.
While IRDA last week said it would give reasonable time to LIC to adhere to the investment restrictions, that, however, seems to have encouraged the latter to make quick acquisitions in select stocks where it holds less than 10% equity.
The strategy, according to market sources, could be to take advantage of the beaten-down valuations to make some capital gains subsequently when market conditions improve, before bringing the stakes below the prescribed limit.
LIC has made fresh investments in companies like Siemens, PTC India, Tata Power and Cipla in which it now holds more than 10% stake each. Based on Wednesday's closing, the combined value of the institution's additional investments in these companies amounted to nearly Rs 800 crore.
A senior LIC official told ET that the Corporation treats its strategic investments and investments by unit-linked investment plans separately.
While the strategic holdings are not traded, investments by some of the funds could rise or fall. "It's possible that in some companies, the total investment would have crossed 10% in the second quarter because of increased investment by some of the Ulip funds," said the official.
The official said that IRDA norms came in August and some of the investments could have taken place before that.
According to disclosures filed with BSE, LIC bought 97,34,113 shares of Siemens between February 6 and September 5, 2008, resulting in a hike in its stake from 7.7% as on December 31, 2007 to the current 11.3%. The company's shares have tanked nearly 30% in the past one month.
PTC India and Tata Power are the two other notable examples where LIC now holds a little over 10% after acquiring additional shares in September. The stocks of these companies have lost 18% and 12% respectively in one month.
With these latest acquisitions, the number of companies where LIC holds 10%-plus stake has gone up. There are many other blue chip companies, including Tata Motors, Tata Steel, Corporation Bank, Ranbaxy, Cipla, M&M, Maruti Suzuki, Dr Reddy's Labs, MTNL, HPCL Oriental Bank and Reliance Infrastructure where the insurance major holds more than 10% stake over a period of time. LIC would have to eventually reduce its stake in these companies to comply with IRDA guidelinesulator
Markets in New York stumbled again and lost 4% today on growing recession fears as a bad employment report nullified any possible bounce from the successful Senate vote on the bailout plan. The Dow closed at 10,482 and the S&P finished at 1114. It is becoming increasingly clear that the bailout plan will not be enough to right the sinking ship. Although it is possible there might be a small bounce if the House of Representatives passes it Friday, this likely won't amount to much. It's possible that Monday and Tuesday of next week may be positive but our orientation should be short here as risk increases as time goes on. I'm expecting a decisive move below 10,000 on the Dow next week. 9000 is a worst case scenario for October.Perhaps more important is the flight to the US dollar that is crushing all comers including the Euro, crude and gold. As predicted, the Euro is in free fall here and ended the day barely hanging onto support levels at 1.3809. And as fears of a major slowdown grow, crude oil fell back $5 to $93. Gold was hammered and lost 4% today and closed at $840. Gold is quickly losing its safe haven status now, and the US dollar has reaped the rewards of the current crisis. I believe this trend is likely to continue for the next few months. It seems that my forecast for $1000 gold will not be realized. We might see $900 at the end of next week, but rallies should be treated as exit points and opportunities for going short. This also holds for crude and the Euro.By the end of the year, we may see gold at $650, the Euro at 1.20 and crude at $70. This is still in keeping with my previous medium range forecast. The only significant revision is that the short term upside potential has largely already been realized
The most painful part of the bear market may be in front of us. This could be the last leg of the bear. Stock prices start falling because there are no buyers left. The last of the bulls will slowly sell off. There is a complete disconnect between 'value' and stock prices. Many blue chips start selling for what may be handsome value in normal times. But, these are not normal times. Slowdown, recession, destruction in asset prices, become commonly used words. Even this phase will end, but we do not know when. It could be six months, or it could be three years.
How do you cope up in environment of pessimism ?
If you own stocks, switch from momentum stocks to blue chips. Try to create marketeable lots, meaning lots of shares equal to their futures lots. (Example: 1 future in Reliance Capital is 138 shares. if you own Rel Cap, try to make your quantity equal to 138). once you have such lot sizes, consider selling calls against your equity holdings to reduce the cost of your investment.
If you are in cash, either wait for a base formation, or buy small percentages of your available cash in panics, say 5% every time there is a dip.
Comments to this post :
comment:
if the bear markets are to terminate six to eight months from now then satyam @225, kotakbank @ 350, Dlf @ 175, Nifty @ 3175 is a possibility. Do you agree?
My response:
Yes, this is possible. We are in a bear market. Prices will move lower. We have no way of saying when the down trend will end. Maybe now, maybe later. The bear market is assumed to continue until reversal signals come in. Such signals have not yet been seen.
comment:
Gold & crude going downside, generally it has been observed that when it goes down indian mkt goes up, but now a days no co-relation exist, whats your view ?
My response:
I can only repeat what the economists are saying. Commodity prices are falling due to 'demand destruction' , meaning a slowdown or a recession in the western economies. Therefore, our stock market is under pressure since we are likely to be affected by any world wide slow down.
Yet, what could happen if crude were to fall to $50 ? I do not know the answer. It is wiser to track the price charts. the charts will tell us what may happen.
While IRDA last week said it would give reasonable time to LIC to adhere to the investment restrictions, that, however, seems to have encouraged the latter to make quick acquisitions in select stocks where it holds less than 10% equity.
The strategy, according to market sources, could be to take advantage of the beaten-down valuations to make some capital gains subsequently when market conditions improve, before bringing the stakes below the prescribed limit.
LIC has made fresh investments in companies like Siemens, PTC India, Tata Power and Cipla in which it now holds more than 10% stake each. Based on Wednesday's closing, the combined value of the institution's additional investments in these companies amounted to nearly Rs 800 crore.
A senior LIC official told ET that the Corporation treats its strategic investments and investments by unit-linked investment plans separately.
While the strategic holdings are not traded, investments by some of the funds could rise or fall. "It's possible that in some companies, the total investment would have crossed 10% in the second quarter because of increased investment by some of the Ulip funds," said the official.
The official said that IRDA norms came in August and some of the investments could have taken place before that.
According to disclosures filed with BSE, LIC bought 97,34,113 shares of Siemens between February 6 and September 5, 2008, resulting in a hike in its stake from 7.7% as on December 31, 2007 to the current 11.3%. The company's shares have tanked nearly 30% in the past one month.
PTC India and Tata Power are the two other notable examples where LIC now holds a little over 10% after acquiring additional shares in September. The stocks of these companies have lost 18% and 12% respectively in one month.
With these latest acquisitions, the number of companies where LIC holds 10%-plus stake has gone up. There are many other blue chip companies, including Tata Motors, Tata Steel, Corporation Bank, Ranbaxy, Cipla, M&M, Maruti Suzuki, Dr Reddy's Labs, MTNL, HPCL Oriental Bank and Reliance Infrastructure where the insurance major holds more than 10% stake over a period of time. LIC would have to eventually reduce its stake in these companies to comply with IRDA guidelinesulator
Markets in New York stumbled again and lost 4% today on growing recession fears as a bad employment report nullified any possible bounce from the successful Senate vote on the bailout plan. The Dow closed at 10,482 and the S&P finished at 1114. It is becoming increasingly clear that the bailout plan will not be enough to right the sinking ship. Although it is possible there might be a small bounce if the House of Representatives passes it Friday, this likely won't amount to much. It's possible that Monday and Tuesday of next week may be positive but our orientation should be short here as risk increases as time goes on. I'm expecting a decisive move below 10,000 on the Dow next week. 9000 is a worst case scenario for October.Perhaps more important is the flight to the US dollar that is crushing all comers including the Euro, crude and gold. As predicted, the Euro is in free fall here and ended the day barely hanging onto support levels at 1.3809. And as fears of a major slowdown grow, crude oil fell back $5 to $93. Gold was hammered and lost 4% today and closed at $840. Gold is quickly losing its safe haven status now, and the US dollar has reaped the rewards of the current crisis. I believe this trend is likely to continue for the next few months. It seems that my forecast for $1000 gold will not be realized. We might see $900 at the end of next week, but rallies should be treated as exit points and opportunities for going short. This also holds for crude and the Euro.By the end of the year, we may see gold at $650, the Euro at 1.20 and crude at $70. This is still in keeping with my previous medium range forecast. The only significant revision is that the short term upside potential has largely already been realized
The most painful part of the bear market may be in front of us. This could be the last leg of the bear. Stock prices start falling because there are no buyers left. The last of the bulls will slowly sell off. There is a complete disconnect between 'value' and stock prices. Many blue chips start selling for what may be handsome value in normal times. But, these are not normal times. Slowdown, recession, destruction in asset prices, become commonly used words. Even this phase will end, but we do not know when. It could be six months, or it could be three years.
How do you cope up in environment of pessimism ?
If you own stocks, switch from momentum stocks to blue chips. Try to create marketeable lots, meaning lots of shares equal to their futures lots. (Example: 1 future in Reliance Capital is 138 shares. if you own Rel Cap, try to make your quantity equal to 138). once you have such lot sizes, consider selling calls against your equity holdings to reduce the cost of your investment.
If you are in cash, either wait for a base formation, or buy small percentages of your available cash in panics, say 5% every time there is a dip.
Comments to this post :
comment:
if the bear markets are to terminate six to eight months from now then satyam @225, kotakbank @ 350, Dlf @ 175, Nifty @ 3175 is a possibility. Do you agree?
My response:
Yes, this is possible. We are in a bear market. Prices will move lower. We have no way of saying when the down trend will end. Maybe now, maybe later. The bear market is assumed to continue until reversal signals come in. Such signals have not yet been seen.
comment:
Gold & crude going downside, generally it has been observed that when it goes down indian mkt goes up, but now a days no co-relation exist, whats your view ?
My response:
I can only repeat what the economists are saying. Commodity prices are falling due to 'demand destruction' , meaning a slowdown or a recession in the western economies. Therefore, our stock market is under pressure since we are likely to be affected by any world wide slow down.
Yet, what could happen if crude were to fall to $50 ? I do not know the answer. It is wiser to track the price charts. the charts will tell us what may happen.
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