In view of the recent market events, I find it apt to create a blog to express my views about the current market scenario and what the future beholds.
Firstly, I would like to Analise the reasons for such a deep cut which has given sleepless nights to many people
The global scenario is not very encouraging. The subprime mess in the usa is going to get bigger as around 400 billion dollars are on the line and the brokerage firms havent written enough loses. If ever one wanted to buy a house in the USA, the next 3 months seem to be the best time.
Lot has been said about the decoupling theory about the fact that India will be isolated from the world economic crunch and that our economy was driven by domestic factors. I agree that sectors like construction, real estate, FMCG, power are largely domestic driven. But one fails to realise that major investments are required to carry out the infrastructure projects and the investment comes from abroad. Further, sectors like textiles, IT, education are largely dependent on the US. The fear of a recession in the USA is growing by the day, and I believe many job cuts and less IT spending will happen. I would want to avoid IT and textiles for sure. I expect more sub prime loses and the brokerage houses to cash out from profitable investments
Secondly, the reliance power ipo has sucked out liquidity from the markets. It has generated tremendous interest from fii's, banks, doctors, lawyers, housewives, pan wallas and the like. In search of listing gains, people have applied for the ipo blindly and the retail investor will end up getting only about 15 shares. With the grey market premium quoting at around 250rs, down from earlier 400 rs, the listing gains may be around 4-5k only. Further, due to the recent crackdown in the FNO segment, the HNI's and retail investors dont have the liquidity required to pay off the margin. As a result, people have been forced to sell their holdings which has lead to further downside. Also, some people have started making stop payments on their check for the IPO. The biggest gainer in all this will be Anil Ambani, he will have an liquidity of 11,000cr. I dont think all the money will be diverted to the power projects and some of it will find its way to the stocks market and buying will ensue at lower level
Thirdly and most importantly, the Retail investor is the most responsible for the fall. There was so much exhuberance in the stock market. 16-18 yr olds, having no knowledge in the market had started investing and were talking about becoming rich quickly. Housewives, having no knowledge or expertise too to the stock market in a big way thinking it was their kitchen backyard. Where ever you go, people spoke of only stocks. Agreed, the greed of fast money is strong, but it always leads to overtrading.
Another fundamental flaw which I find is that 95% of the people rely on tips. Now these tips work wonders in a bull market but when correction occurs, such stocks are the one which fall the most. The retail investor at most times buys when the prices are sky high and sells at rock bottom. The operators feed on such innocent people and make a living out of it
Everytime, there occurs a huge euphoria about the stock market. People brag about the quick money they have made in Futures and Options and mock at others. Such illiterate people are the prime cause of margin pressures being created and market falling on its head. Further, with such rise in the sensex, new class of innocent investors, looking for fast money and relying on tips, enter the market only to be wipped out by savage corrections. They cry foul and curse the market never to return again. There is a temporary lull, that is time when the FII's and operators are buying. Slowly and steading there is a rise in the market and soon it goes into overdrive when again a new generation of money mongering people enter and FII's are more than willing to book their profits
So then what is the road ahead. Firstly, one should not PANIC. I know its easier said then done. But having a risk appetite is a must. One needs to have patience and invest for long term.
FNO can be done, but only when you have adequate KNOWLEDGE. Relying on tips wont be advisible. I would use FNO only to hedge myself against the cash positions i hold.
Overtrading is a strict no and all such temptations should be avoided
I would advise people to divide their portfolio into few sections as follows
Allocate 50% of your cash for long term. Invest in good quality stocks and I am sure they will give you above average returns
40% of the portfolio should be a trading portfolio. Trading means short term holding and is based purely on technicals
there maybe criticism about the requirement of a trading allocation, but then one needs to capitalise on short term gyrations of the market
10% of the cash should be kept in the bank in times of need or margin pressure.
Buy quality stocks and buy only few stocks and allocate your money wisely to each stock and strict Money Management rules should be followed
The following stocks are a screaming buy
GMR INFRA
KS OIL
NTPC
ADLABS
JPASSOCIATE
LOK HOUSING
Ibulls real Estate
IKF technology
Videocon
Godrej Industries
Lot has been said about the decoupling theory about the fact that India will be isolated from the world economic crunch and that our economy was driven by domestic factors. I agree that sectors like construction, real estate, FMCG, power are largely domestic driven. But one fails to realise that major investments are required to carry out the infrastructure projects and the investment comes from abroad. Further, sectors like textiles, IT, education are largely dependent on the US. The fear of a recession in the USA is growing by the day, and I believe many job cuts and less IT spending will happen. I would want to avoid IT and textiles for sure. I expect more sub prime loses and the brokerage houses to cash out from profitable investments
Secondly, the reliance power ipo has sucked out liquidity from the markets. It has generated tremendous interest from fii's, banks, doctors, lawyers, housewives, pan wallas and the like. In search of listing gains, people have applied for the ipo blindly and the retail investor will end up getting only about 15 shares. With the grey market premium quoting at around 250rs, down from earlier 400 rs, the listing gains may be around 4-5k only. Further, due to the recent crackdown in the FNO segment, the HNI's and retail investors dont have the liquidity required to pay off the margin. As a result, people have been forced to sell their holdings which has lead to further downside. Also, some people have started making stop payments on their check for the IPO. The biggest gainer in all this will be Anil Ambani, he will have an liquidity of 11,000cr. I dont think all the money will be diverted to the power projects and some of it will find its way to the stocks market and buying will ensue at lower level
Thirdly and most importantly, the Retail investor is the most responsible for the fall. There was so much exhuberance in the stock market. 16-18 yr olds, having no knowledge in the market had started investing and were talking about becoming rich quickly. Housewives, having no knowledge or expertise too to the stock market in a big way thinking it was their kitchen backyard. Where ever you go, people spoke of only stocks. Agreed, the greed of fast money is strong, but it always leads to overtrading.
Another fundamental flaw which I find is that 95% of the people rely on tips. Now these tips work wonders in a bull market but when correction occurs, such stocks are the one which fall the most. The retail investor at most times buys when the prices are sky high and sells at rock bottom. The operators feed on such innocent people and make a living out of it
Everytime, there occurs a huge euphoria about the stock market. People brag about the quick money they have made in Futures and Options and mock at others. Such illiterate people are the prime cause of margin pressures being created and market falling on its head. Further, with such rise in the sensex, new class of innocent investors, looking for fast money and relying on tips, enter the market only to be wipped out by savage corrections. They cry foul and curse the market never to return again. There is a temporary lull, that is time when the FII's and operators are buying. Slowly and steading there is a rise in the market and soon it goes into overdrive when again a new generation of money mongering people enter and FII's are more than willing to book their profits
So then what is the road ahead. Firstly, one should not PANIC. I know its easier said then done. But having a risk appetite is a must. One needs to have patience and invest for long term.
FNO can be done, but only when you have adequate KNOWLEDGE. Relying on tips wont be advisible. I would use FNO only to hedge myself against the cash positions i hold.
Overtrading is a strict no and all such temptations should be avoided
I would advise people to divide their portfolio into few sections as follows
Allocate 50% of your cash for long term. Invest in good quality stocks and I am sure they will give you above average returns
40% of the portfolio should be a trading portfolio. Trading means short term holding and is based purely on technicals
there maybe criticism about the requirement of a trading allocation, but then one needs to capitalise on short term gyrations of the market
10% of the cash should be kept in the bank in times of need or margin pressure.
Buy quality stocks and buy only few stocks and allocate your money wisely to each stock and strict Money Management rules should be followed
The following stocks are a screaming buy
GMR INFRA
KS OIL
NTPC
ADLABS
JPASSOCIATE
LOK HOUSING
Ibulls real Estate
IKF technology
Videocon
Godrej Industries
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