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Question: Whats the future of Stock Market in Twenty Ten ?

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If you are expecting an answer to the question above, sorry to disappoint you. I don’t have any answer personally. One of the resolutions that I have made this year is – I will be more active in Indian Stock Market – And hence this question to readers.

You can say I am crowd sourcing the answer to this question (for my benefit…read on).

sensex-nse-stock-market-india

Here is my situation currently – I came back from U.S in December 2007, and invested my savings in Stock Market in first 2 weeks of January 2008. Roughly, I invested 60% of savings in Equities and Mutual Funds. The Stock Market was around 21,000 and many analysts were boldly claiming that it would go on to touch 30k, which based on 2007 rise looked very much plausible.

But on January 21st, all hell broke loose – within no time, I lost most of my investment in stock market. It was a real shock to me.

And in last 2 years, I have been patiently waiting for markets to come up. I had 3 Major bets – Reliance, Suzlon and Unitech. The latter 2 stocks have f***** my portfolio so bad that even today I am close to 50% down !

I haven’t bought or sold anything significant in last 2 years, but this year I am determined to make amends and be active (in expectation of making gains…do I really need to state that :)

This is what my portfolio looks like currently – Suzlon & Unitech were biggest blocks when I invested in them, but they have now shrunk by 70% of their value.

Aruns portfolio

As far as the question goes – I am not looking at the “right” or “correct” answer, because no one can really predict that.

What I looking for is collective wisdom of readers to guide me in making the best choices. It is not only for me, but for countless other people as well who are sailing in the same boat. I have spoken to at least 5 different people this new year, asking me to guide them – and I am putting the same question to trak.in readers.

Now, Let me hear you guys !

  1. […] You may also want to help Arun with your Stock Market predictions for 2010 […]

  2. Financial market education says

    thanks for sharing a fantastic suggestion madhav,For understanding stock market, you can take up online courses also. Check out http://www.chartsmakemoney.com for books, courses and tools on Technical Analysis.

  3. Viral says

    Thanks Mr Arun for allowing my late comments for the above post.

    Apart from above comments, I would also like to add a point over here that, since you had to suffer losses in Real-estate major Unitech, dont develop negative sentiment for the over-all sector as an industry.

    Real-estate sector in India is one of those rare sectors which provides for good visibility & future over a long term horizon (though not for 12-18 months of your perspective, as u mentioned – but much more). But, indeed, it is very unfortunate that 2nd largest company Unitech has come for a very unusual beating during the just-passed crisis period. It was expected that the first-two leading companies from the sector – DLF and Unitech – would whether the slow-down storm better than other smaller companies. The company (Unitech) was knocked down on the back of very huge debt. Rather, I would prefer the leader DLF in this regard- though even it has debt on its books but it is not as concerning as Unitech.

    The sector is largely unorganized in the country & is fraught with lots of lack of clarity and ambiguity on the real assets and land banks of the companies apart from involvement of black money in the sector. Going ahead, over longer term horizon, things can only improve. But, i would like the sector to correct somewhat before taking entry into it through equity markets.

    Definitely. Sectors which look good for real long term horizon being as follows:

    1) Real-Estate
    2) Education
    3) Hospitality
    4) Packaging

    Lastly, would like to hear something from you. Whatever be your comments.

  4. Viral says

    Dear Mr Arun,

    With invitation from you on the blog to comment on your portfolio, I would like to add over here that your portfolio seems to be over-diversified within the Banking & financial sector. In your portfolio, you have ICICI, HDFC, IDBI and IDFC. This could have been kept limited, to say, ICICI (which provides benefit of both business of HDFC + HDFC Bank, though not as much but in brief) and IDFC which caters Infrastructural finance.

    But, you rightly own shares of RIL, L&T and NTPC which covers 3 different sector businesses. You made a decision to Buy Suzlon, but it is not as big a part of your portfolio like you have in HDFC or RIL. Hopefully ,Suzlon will revive in times to come. It is a good company, though with volatile business prospects.

    In fact, Leveraged buy-outs is one factor which affected many good companies like Suzlon, Tata Motors & Tata Steel. Probably, we may realize with time that Suzlon is not as bad a company as made out to be. It did got effected due to some worries on Blades and even Leveraged buy-outs of RE Power and Hansen Technologies (it recently sold majority stake in Hansen though).

    Some Good stocks which you could look to accumulate in a deeper correction would be:
    1) Power Gird (Monopoly in Power Transmission)
    2) BHEL (you can afford to up your stake in Capital Goods/Power Anicllary)
    3) BEL (Company with Major presence in Defense Sector)
    4) 1 or 2 Pharma stocks in your Portfolio won’t be too bad either.

    I also feel that an investor with Medium Risk profile, should diversify his Portfolio as 70% Large-caps & 30% Mid-caps. Your portfolio seems quite alligned in a similar ratio with mid-caps in your portfolio being Suzlon, Sesa Goa, Praj Industries & IDFC. All the 4 mid-caps with good fundamentals.

  5. Aniket Gour says

    Arun- Its true that suzlon had not been perfoming well but you know the main reason for it is there is a defect being reported in its turbine from nearly 60% of its client and do to that also the potential buyer is not willing to buy it. We can say it was a bad luck for you but as far as other power scripts are concerned as I told you to look for its history and also its future planning. Again one thing can spoil all power scripts, you know nearly 90% of the power equipment orders are being placed with china so 2 days before only L&T had requested government to impose anti dumping duty on most of chinese product. If government reacts on that it can affect the shares of the companies.

    Madhav- Hey thanks for clearing my concepts and also I would have to study a lot about franchise. But as far you told me about profit issue. it’s true but again I would like you for your suggestion on the foll concept
    Hey any company while bidding for a power project take all the issues cost of material and all other expenditure. So they try to maintain a buffer level. For ex : Take case of infosys result they are considring rate of dollar at 45.55 rs if the doller falls than that value they try to compensate the ruppee effect on margin by other means so that the projected profit do not differ by large sum. And while placing order with companies for material the companies define every thing in contract dollar rate etc etc.

    1. Madhav Shivpuri says

      Aniket,
      1. Regarding profits:
      Look at Hero Honda’s stunning results but you will still see the mgmt complaining that the higher costs ate up on the margins aka. profits(http://www.livemint.com/2010/01/13225846/Tough-to-keep-margins-at-22.html)

      So the companies can buy options and future contracts for raw materials, hedges for FX exposure etc. but there is only so much one can do. If the demand in volume, movement in FX is beyond the hedges the companies can lose quite a bit.
      You see the price of gold go higher everyday. Then how many will buy Tanishq jewellery? Volumes will go down as the price go up.

      2. What is a ‘franchise’? Buffet calls a business a ‘franchise’ if it has a product that is (1) needed or desired, (2) has no close substitute, and (3) is not regulated.

      A good example is that of ‘Coke’. If you want to have Coke, you drink Coke and not Pepsi just because it is cheaper by one rupee (for example). So, Coke can increase the price of their drink without losing you as a customer. So, Pepsi cannot replace Coke. And the price of Coke is not capped by the govt. So Coke can continue to make profits, increase margins while the same does not apply for pen, paper, bread, cement, glass, power etc.

  6. Madhav Shivpuri says

    Arun,
    “Madhav, I think you should write posts on trak.in educating people on Investment – you seem to have lot going for it” – thanks… I think I should at some point of time and spare people my long comments :-)

  7. Vishal Sanjay says

    Can anyone tell me if there are any age restrictions for stock trading? And also please do mention a good trading platform which shouldn’t be much expensive. I am planning to keep my first foot steps in the stock market, not for any profits, just as a learning experience.

  8. Sumedh says

    No discussion on MFs so far? What might be good sectoral funds to invest? Infrastructure funds? What else?

    1. Arun Prabhudesai says

      Yes, MFs are something like Fixed Deposits, you invest and forget about it. I have invested in MFs, but investing in Equities gives you a lot more satisfaction – especially when your decision is correct for a particular script.

      Anyways, I concur to the fact that MFs are the safest choice and if you do not have time, just buy them and forget about it !

      1. Sumedh says

        Well, we can take as much risk as we want with MFs…you can buy an opportunities fund that invests in upcoming companies…but yes, you can never invest in very small companies through MFs…

        If you just have a sectoral call (IT will do well in 2010), then may be its a better bet to buy an IT fund, rather than trying choose a single player…also, for businesses that commoners generally don’t understand (say Pharma or even banking), sectoral MF should be a great option…

        Any way, TIPBlog is a good blog if you are looking for safe dividend bets for long term…

        1. Madhav Shivpuri says

          For all those who think you can invest in MF’s and forget about it – DON’T! If not, you will have to forget about the returns too!

          An analogy: It’s your egg and you are going to outsource the eggs to another bird to heat it. You need to know the bird (know the fund manager and the fund company, read the prospectus of the particular fund you are interested in), the bird is going to charge you fees to do it (fund management charges), you have no control over the actions of the bird (buy/ sell/ sit on cash decisions) and bird might fly away (fund mgr could leave).

          If you invest in a stock, you take the responsibility for it and monitor one stock. If you invest in an MF, you need to watch fund mgr, the fund mgmt company, the stocks/ sectors they are buying selling, compare performance amongst peers etc. MF investing is not for those wish to forget about it. Many Indian youths who have ventured into MF and stock investing just after they have seen their first pay checks or invested because their friends or family did it successfully have burned their fingers. Beware!

          (Off topic but…if youngsters have idle money and they do not have enough life insurance, I personally would advise them to buy a 30yr term insurance instead of investing in stock market. That way their money would protect their families, insurance is cheaper when they are young and it’s charges do not change with the stock market! So when the stock market heats up think about insurance.)

          For those interested in FD’s here some info for you – http://www.business-standard.com/india/news/returns-to-beat-inflation/382589/

        2. Arun Prabhudesai says

          Fantastic suggestion Madhav, I think you should write posts on trak.in educating people on Investment – you seem to have lot going for it. :)

  9. Janani Barath says

    I enjoyed reading this post. I do hope you have follow-up posts about the steps you take in the stock-market. It would be really interesting to see how you fare.

    I would have happily shared any information I have with you but I am currently only investing in index funds and do not have enough know-how of investing in the stock market. I am too much of a believer in Index Funds but I have decided to learn about investing in Futures and Options just for theoretical knowledge. Infact I just called an ICICI agent and fixed up classes for me!!!

    I wish you all the very best and hope that your fortunes grow manifold in 2010

  10. Aniket Gour says

    Predicting Stock market is like scoring a perfect 10. Many people do it but all predictions are not 100% correct. They are volatile same as market.
    See So far I don’t invest in market but one condition I know we always have to wait for a golden opportunity. There were many these year.After Satyam scam the shares were at 10Rs level and also it was clear that the government wanted to bail out that company so one should have invested in at for short term only and see now they have gained nearly 100%. What I feel that you should invest in NHPC, Adani power, unitech,infosys,UBI. I know you may be considering me an fool but these companies are for long term investment. We would get our returns nearly after 2,3 years but they would rise since in case of adani and NHPC these are power sector companies and there power generation capacity would increase in these 2,3 years that means increase in sales and also profit. So these stock are bound to rise.
    Diversify your portfolio. Invest in Gold also and also some MF’s. One thing is for sure market would go to 21k but for how many days it would survive at that level we can’t say because after every 2,3 days sensex gain session there is a profit booking (selling of shares for profit).
    Try to invest in IPO’s and before investing make a research of that company like
    market capital, future expansions (take case of adani power), Last 3 years profit rate, No of deal’s etc
    I hope I was helpful to you.

    1. Arun Prabhudesai says

      Except NHPC and Infosys, I would be wary about investing in other scrips suggested by you – They are too volatile for my liking.

      You know, my big bet suzlon was precisely for that reason – Power is going to play big in coming years and alternative power generation sectors like Solar and Wind will be hot. My investment in Suzlon proved to be biggest blunder in my investing history.

      What I am now looking for is stable stocks that rise gradually with a proven track record.

      Thanks for your insightful comment…

    2. Madhav Shivpuri says

      Aniket, your assumption about ‘sales’ increase for NHPC and Adani power most likely is correct. However ‘profit’ is not directly proportional to ‘sales’. Say a company’s sales grows 10% ever year (more demand from consumers), its profit could grow only at 2% due to increase in cost of raw materials or salary increases, competition, cap of per unit charges from the govt. etc.

      To be able to make substantial profits in any industry you need to focus on what Warren Buffet calls ‘a franchise’.

  11. Madhav Shivpuri says

    Arun,
    It is a very timely question and a subject which is close to my heart. My theory is that India has a huge consumption potential and so focus on companies that feed this. Here is a glimpse of my portfolio and my thinking to give you an idea.

    – Educomp (Education- huge growth potential in the next 3-5yrs or even 2 decades as the youth population is expected to explode)

    – Shriram Transport Finance Corporation (STFC) (Transporation will be critical to move stuff for infrastructure projects. STFC funds trucks and has #1 market share)

    – ICICI Bank (Banks fund growth. At the time I bought in Oct-08, this big cap bank stock was the most depressed and a compressed spring would grow back to greater highs).

    – Sterlite technologies (Telecom and Power cables – Largest manufacturer locally and on course to become 3rd biggest globally. Makes sense given the growth potential.)

    – OnMobile (#1 local Mobile VAS provider with global focus)

    – Power Trading Corporation (Power generation in India is exploding.There will be many companies that generate power but how supply and demand will be able to trade it?)

    If you want to be a value investor, the best books I can recommend are “The Little Book That Builds Wealth” (http://bit.ly/6mIj1B) and “The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market” (http://bit.ly/5d1Ua9) both by Pat Dorsey. I would not recommend putting down any more money before you have read them. Good luck.

    1. Arun Prabhudesai says

      Madhav,
      Thank you for your excellent comment and sharing with us your portfolio. I am heading off to Crossword this weekend to pick up these books. Thanks for the tip.

      As for your portfolio – would you believe that Educomp has been on my mid since last 4 months, but just did not get around buying it. Like I said, this time, I am not going to do arbitrary buying – Will be looking at all the aspects before picking up any stock.
      I think the books suggested by you will help me a lot in that sense…

      1. Madhav Shivpuri says

        Arun, you are welcome. You can look at Educomp esp. since its price has come down a few % in the last couple of days. There are competitors out there but the size and reach of this company is currently 10 times its nearest competitor, has enviable margins and due to the good work so far it probably enjoys good relations with the education ministry. So I would think it would be a good bet for the next 2-3yrs at least by the time the competitors manage to scale up or new entrants show up.

  12. Francois Montrelay says

    Arun, I suggest you invest directly into componaies that you know and where you trust the management., not in the stock market.

    1. Vishal Sanjay says

      You can’t do that unless you meet the SEBI conditions, a person who is allowed to invest directly into companies has to be an accredited investor. In India an accredited investor is a person with more than 4 crores in net worth or has an annual income of 60 lacs. If you are accredited investor it can be very profitable, that is why the old folks say the first million is often the toughest!! Many people take 5 years to make the first million and just 6 months for the second.

  13. Vishal Sanjay says

    I have not yet entered the stock market, but I do imitate experts at times. Well I’m very confident that the Indian stock market will touch 21k, but its going to come down to more than half from there. And education, pharma and consumer products are good if your planning a long term investment, but its of no use when your looking to sell short. According to me short selling is the best way to make money in todays markets, atleast until you have a good capital to invest. If I were you I would have used the stop loss system to minimize losses. And one more thing experts tell me, go for small cap ones if your looking to invest in the long run, Reliance, Suzlon and Unitech are pretty volatile for long term investments.

  14. Gopinath Mavinkurve says

    You have some gems in your portfolio! Maybe you could be in BHEL instead of Praj. It’s a more happening scrip. There are 3 sectors which i think you should invest in: Education (Educomp); Pharma (Cipla, Aurobindo, some other); Consumer Products (HUL, Godrej Consumer, Marico, Pidilite Ind). Though some of these stock movements may seem boring to some, these are defensives which dont fall too much during crashes. Most importantly, spread your investments in small purchases every month and dont get into any scrip all at one go! The suggestions have been made assuming you have a long-term view and no windfall profit motive in the short run.

    1. Arun Prabhudesai says

      Hello,
      Thanks a Ton. Yes, I forgot to mention – all the suggestions are requested with 12 – 18 month view.

      Now, I completely subscribe to the view that I should spread my purchases for each month. and that is one thing I am surely going to follow, which will actually average out my buy price.

      What is your opinion on following:

      Should I keep some investment for short term investments and take advantage of price movements in short term? is that a healthy strategy?

      1. Gopinath Mavinkurve says

        The market is moving in a narrow range and this may not yield much. The time spent on keeping track of such strategy is too large to justify the gains (if any, net of losses). It would be better to have some debt investments which can be quickly liquidated when there is some dip on fears of any kind and choose your picks at such times.

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