THE GREAT INDIAN BULL RUN

It seems that I am destined to miss the excitements of stock market during any of my hiatus from the blog to attend other engagements. The Sensex remained there at tantalizingly near 20,000 when I shined off, then it slided by around 2000 points for lack of cues. It made a resounding recovery of 924 points in a biggest single day rally to be there at its very correct place near 20,000. It reconfirmed my standing (my earlier popular blog: Should we buy stock now?) that there is still some time left for Bears to set in. For now it is the “Great Indian Bull Run”.

Market pundits always maintain, “bull markets don’t just die of old age, historically only one factor has terminated bull runs: rapidly rising interest rates. Bear markets occur when earnings collapse due to an economic recession, which in turn is brought about when real intereat rates cross the threshold of pain”. (Ruchir Sharma: The Sky Isn’t Falling –Yet, November 5, 2007, Newsweek)

To go by the above referred article there are still some way to go before the Indian Stock Market enters into the “bubble” territory. History shows the bubbles peaks when average stock price reach the level of 50-60 times projected earnings for the coming year. Some examples of bigger bubbles are NASDAQ in 1989 and Hong Kong market back in 1973, when the P/E ratio peaked at 55. The bubbles were busted by respective central banks by tightening measures.

Any tightening measure will result in slowing of overall economics of our country which the government will very reluctantly opt for, in all possibilities.

There are some theories floating around like “look beyond the index stocks”. This is a dangerous proposition to small investors as most of the small investors only look at the stock price movement, not beyond that. Some penny stocks are good bait for those unsuspecting small investors by those big great white sharks lurking in the deep blues of uncertainties. They should always value the fundamentals rather than unwanted tips from those uncertain sources.

A few issues back Outlook Money (15th October, 07) came up with nine good mid cap infrastructure stocks which seem to fit the bill for small investors. For small investors these stocks may be kept in their radar for picking up when the stock price and market allows picking (refer my earlier very popular blog: Waiting forever to be discovered by world). For our benefit let me note them down below:

Bharat Bijlee: Good order book and earning visibility.
Bharati Shipyard: Cost competitiveness results in better standings.
Era Infra Engg: Good project execution.
Hercules Hoists: Diverse Product Range in a modern manufacturing facility.
India Cement: Biggest cement manufacturer in South India.
Indo Tech Transformer: Impressive growth potential.
International combustion: Niche product range.
Paramount communication: May be the growth story to come next.
Voltamp Transformers: Should ride the infrastructure growth story.

In the mean time let us bask in the glory of Sensex Sun and as old adage says: make hey while the sun shines.

BIG OPERATORS VIS-À-VIS SMALL INVESTORS

Though the term “Operator” does not seem right for all high net worth investors or institutional investors, the term somehow stuck to them. They have the capacity to manipulate the market. They can artificially jack a stock up or dump it down the drain and that is for anybody’s guess. If they choose to operate in cartel they can manipulate the whole market. We have the terms Bear Cartel and Bull Operator in capital markets.

The recent additions to the term “Operator” are Foreign Institutional Investors (FIIs) and Hedge Funds. When they come; they come in swarms and when they go, go out in swarms. These dangerous/vicious Operators can even ruin the economy of a country if the regulators are not careful enough. The established cartels and regular Operator treat them in awe. They have enormous money power and very well designed market operation employing best brains, which can upset any apple cart. There are lots of stories floating around in market, how so and so were really upset and had to gulp down some bitter pills against their very will. At times; it seems to be some kind of poetic justice meted out for some unjust operations affecting the Really Small and Helpless Investors (RSHI) that was carried out some years/months/days earlier.

The small investors are helpless spectators of the drama. The intelligent ones utilize the tide and reap the benefits. But most jumps into the arena a bit late and sadly have to converts their trade into investment with some real long horizon (*). My policy is to be the spectator and not try to be intelligent. I will invest only after studying the script and invest in them if the script can satisfy my basic requirements of sound fundamentals and low P/E and good earnings. (Change of strategy!!)

Cummins India is coming back to news as some Broker house has put it into buy; probably now it is making good chart patterns. I still have the opinion that the script has potential to go further up and may touch new highs, though I had come out of it as I did not had enough space for profit booking. It is still buy in correction.(*)

The TCS result has put some interest back into IT space. The IT picture seems to be gloomy in near term, but Indian IT Companies have the dominance and enough fire power to pull their act together again. I had a long night on Sunday, and decided to stay put in HCL Technology at least till result. My gut feeling says it will break the resistance of INR 350 in near term, I repeat that is gut feeling only.

I have two stocks in mind which may offer some short/medium term trading opportunity.

Centurion Bank of Punjab: Sometime unreasonable P/E defies justification if good stories are anticipated.

JBF Industries: May be another story of pulling the act together.

Both stories are touch and go. Careful study will be required.