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.

RULES & RUES

I have a set of rules for the RSHI, the Really Small and Helpless Investors.

1. The first is to cut losses.
2. The second is not to forget the first. With the small capital at his disposal a RSHI can not effort to lose his money.
3. The third is to find out what the herd is following, I can jump in the band wagon and jump out of it taking some profit, before anybody’s guess. Trick is not to be greedy there. The herd, in most cases, follows some tips which may not sustain for long.
4. The fourth is not to convert a losing trade to investment. Investment is something different, needs a through study on fundamentals. But in trade, it needs the study of the market sentiment. By Jove, some gut feelings too. Yes it is true “Do not follow the herd”. But swimming against the current needs lot of strength in wallet.
5. The fifth is to think about the consequences of a losing trade.

Now, to my previous investments, my first stock Cummins is going up and seems to go on and on. Already it has achieved my target. Now I am in dilemma? If I follow the market pundits I should book part profit after achieving the first target. But with that small numbers of stocks booking part profit means nothing. Again I can not effort to lose the profit if the market goes down. My gut feelings says the market will go up further, as it did not correct itself even after the mega issue of DLF, as most RSHI anticipated (influenced by prime time TV experts?). Should I wait for another week? These thinking occur to most RSHI, as they do not have the access to correct information and research.

It occurs to me now why most RSHI loses his money in stock market. Either they tend to sell the stocks when the stock has not reached its correct valuation or when the market goes down. Most cases they do not sell the stock in down market as they have to lose profit and they turn their trade to investment. Then they wait for agonizingly long period of time.

My case, I will ask my free advisors for their valuable tips. I have time as market is going to open on next monday. It seems I can not do away with market tips.