Market Recommendations
Dear friends,
RBI Governor, Raghuram Rajan, in his 4 th Sept’13 address, raised the Repo rates by
25 bps. This was in fact, a total opposite of what the country was expecting. He
toed the line of his predecessor, thereby confirming that the actions taken by
Subba Rao were indeed correct. Then why did the markets, both Forex and Stocks,
fluctuate so wildly in Aug 13 and yet post Raghuram’s address, markets did not fall
back to 5200 levels or rupee did not touch 66 or 68 levels.
The answer is simple – human psychology – fear. The fear psychosis was driving
the markets and thereby experiencing the extremes that we saw.
But beyond that, the principle of naturality has to prevail. That is water will find its
own course. Markets, both stocks and Forex will have to stabilize in due course of
time.
Indian stock markets have been subdued (sensex/nifty) for a period of 5 years
now. Nifty by and large has been in the range of 5500 +/- 500 since last 2 years.
It is common sense that one has to buy low and sell high to make money. Yet,
today when the markets are at its lowest people do not wish to invest. Everyone
wants to put money into Gold or real estate.
I am giving you Gold 30 year chart below. Gold has seen a bull run of 8 years (from
2004) and in my opinion people cannot make money by investing into gold
anymore.
Note: India since last 50 years has been net importer of Gold and the highest import in the history was done in year 2012, yes, when the international prices were avg 1700.
Coming to real estate, with the last 10 year price spike and with real estate bill
coming, with entry and exit in investments being illiquid, I don’t see a very
profitable investment route in this sector in the immediate future.
We are thus left with only one asset class, equities. I am giving you the following
graph.
See and judge for yourself. 2003 PE vs Sensex, 2008 PE vs sensex and 2013 PE vs
Sensex.
Admittedly, the country is having numerous problems:Corruption
- Non governance
- Policy inaction
- Elections
- Inflation etc etc…
Yet, my experience tells me that the principal of naturality has to prevail.
Things change ……to explain:
1. 2008 Oct- the world was seeing its worst ever crisis- yet in 2009 things were
in control – cos of all corrective and collective actions taken by all central
banks
2. 2011 – World was talking about replacing USD with EURO fearing US default,
yet today USD is the strongest currency.
3. 2013 sept – Rupee from 69 came to 62 and Market from 5100 rallied to 6100
nifty in flat 15 days.
What I am trying to establish is that, reasons will appear automatically for the
markets to behave and take its course of naturality.
So, the next question is, whether the worst is over for equities. My answer is NO,
not yet. We still have challenges in the country as enumerated above and external
challenge is of unknown ie FED tapering , Euro issues, etc. As and when these
issues will come, markets will react and react strongly and wildly.
Then how can one trade. Is it possible to sit tight with cash and jump in when the
market fall and again exit at higher levels when the market rises. Theoritically, its
possible, but practically due to human psychology, its extremely difficult to execute
the plans.
So what’s the solution.
The solution is simple. A very systematic and disciplined approach to investing.
Each investor, must invest a fixed sum every month into diversified portfolio of
stocks and I am confident that in the long run (2- 3 years) he is bound to reap
fantastic returns on his investments.
With warm regards,
Samrendra Tibarewalla, CFPCM
PS: You are the best manager of your money. Please take informed decisions only.
Disclaimer : The author in no way will be held responsible for losses incurred on the basis of above recommendations. The investors are advised to take independent decisions after verifying all facts.