Diwali Sparklers In Gloomy Market

A common adage is: ‘When the going gets tough, the tough get going’. Similar was the situation when we had recommended our 11 muhurat buys in our Issue Number 23 dated Oct. 27-Nov. 9, 2008. While the markets were flooded with negative news flow, we had to go ahead with our yearly feature of muhurat buys. The scenario was gloomy with the sub prime crisis having taken its toll on the domestic and global economy. FIIs were selling like there was no tomorrow, GDP growth estimates were lowered, inflation was steadily inching northwards, commodity prices were touching the skies, there was a severe liquidity crunch and above all, there was no political stability, thus making it an absolutely depressing and hopeless scenario for the investors.

Every person on the street hurriedly wrote off the India story and the expectation was that the market would move only southwards. But in such a difficult situation we took the bold step of going ahead with our yearly feature and recommended 11 counters to our investors. We followed a simple mantra of investment: ‘Be fearful when others are greedy. Be greedy when others are fearful.’ To make life easier for our investors, we presented a portfolio of Rs 1 crore and now the value of the same stands at Rs 1.43 crore, thus displaying an appreciation of 43 per cent. It requires a lot of strength to swim against the tide. But with our sea of experience we have managed to do it again and again. There are six counters that have managed to beat the Sensex with significant margins clearly indicating that our stock picking was good. Another factor is that we advised investors to buy the counter in a staggering manner. With the market plummeting after our recommendations, the average buying price was lower for many. However, since it is difficult to time the market, we are only considering the gains on a point to point basis.

As stated earlier, the timing of our recommendations was not just a fluke and this is vindicated from the fact that, apart from recommending the portfolio, we also commented regarding a few other macro economic factors, and have been proved right. Then we had stated that, “All the negatives have already been discounted in the price as far as the sub prime crisis goes”. We had also mentioned that there would not be any political uncertainty as a new government would have taken over the reins of the country. On the political front, the Congress managed to retain a powerful hold which resulted in the market hitting the upper circuit for the first time in history. We had further stated that there would be an alteration in the GDP growth estimates due to a slowdown in the economy and that the commodity upside cycle would take a beating. We had also expected the crude prices to remain soft. Proving us right, India’s GDP growth guidance was reduced to 5.5 per cent from its earlier levels of 8.50 to 9 per cent.
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Commodity prices have declined and are trading at half of what they used to. The crude price is way below its high of USD 147 per barrel. Considering all these factors we had expected the Sensex to hover around the 13,500 to 14,000 levels, providing an appreciation of 35-40 per cent. Now the Sensex is trading above the 15,000 level, thus overshooting our estimates. So this clearly gives an idea about the extensive research work and efforts taken by the DSIJ team. At the current levels it would be advisable to book profit in counters that have appreciated by more than 50 per cent. The simple reason is that the counters have achieved our targets and have also managed to beat the benchmark index. With an eccentric monsoon casting its shadow on the various sectors, cashing in now would make for a prudent strategy.