With S&P CNX Nifty closing at 4159 today i.e. the pivot point of 4155 that I have been writing about all along, it is important to take note of it. It also marks one of the single closing bell above the 20 DMA after a period of almost a month. Does this mean we have a bottom at hand. I think it is far from over yet.
In the post investing cycles I mentioned that it is better to be in utilities rather than any other sector. We see a smart run in some of the utility stocks such as Power grid, NTPC and some sort of recovery in Tata Power. This are the sectors which would serve well over a period of time. Now I see that markets may be poised to move up the important pivot which can surely call for a much stronger bounce. The resistance level of 4280 is a very important resistance level. So 4300 should serve as a good level to sell into the strength. More importantly Nifty generally reverses on Tuesday or Thursday so we have to watch out for any signals. However this is just an observation and no rule.
Taking a look at the political angle that has been much talked about and analyzed. I see there has been a very important shift in the political scenario in the last one week. The stock market never likes uncertainty. In face of a no confidence motion and expected downfall of the government at the center I called for a significant bottom in the stock indices. Now this seem difficult. The dynamics that I look for to understand the market expectation is very simple. Market want a stable government. Indian politics is marred by coalition government which is the weakest form of government that India can afford to have. Previously with left withdrawing support, I expected the government to fall. This would have clearly raised the expectation of a right government at the center. But with Left, Right and BSP stitching up a poor blanket to topple the government, the markets would be frightened to see such a coalition where all the factions have different way to doing things.
Today the Indian PM was quite confident of sailing through this no confidence motion in his opening remarks. The markets actually took it as a sigh of relief that if this government stays for now, some hard decisions can be taken.
Well, right, left or centre, all the political factions have ignored the harsh realities of Indian economy. The total central plan spending on agricultural and allied activities, as a proportion of India’s gross domestic product (GDP), is projected to decline from 1.42% in 2007-08 to 1.30% in 2008-09. Currently India faces acute shortage of food which would take mammoth proportion in the years to come. Just read this very enlightening article on the plight of Indian agriculture -
According to the government of India’s Economic Survey, the rate of growth in India’s food production is 1.2% a year, significantly less than the population growth rate of 1.9%. The creation of additional irrigation potential in Indian agriculture was 3% a year in the 1990s. It has declined to 1.8% in 2007.
The point is that investors need a government which can focus on important fiscal measures which would be beneficial for long term solutions to long term problems. Monetary policy cannot act instantly in a country like India which has very low leverage in financial sector. The important problem to be addressed is not the growth slowdown but the inflationary expectations. Indian inflation scenario is not just due to demand pull, most part of it is cost push. So increasing rates would reduce demand but more important is to increase the production. We already know the production of each and every commodity consumed in India is either less than demand or is just at par. Sugar being an exception which would also not be one in few years time. The important measure right now is to curb the excesses by raising rates. But that will do little to cool off inflation and there is little incentive to slow growth as well. That means if money supply is reduced drastically there would be scarcity of business investment as well.
As for traders, strategy should be to sell on rise to 4215. Beyond 4215 Nifty, an important range would break and markets may go higher to 4450 levels and may at beat reach 4660 in few days. But remember we are in a downtrend, it always pays to sell at important pivots rather than buy. Markets trade in the direction of trend for a longer period of time than the countertrend moves.
It is the time that the market gets an answer for questions on important policies rather than speculating about an MP voting for lotus or otherwise.
Sahil Kapoor
Comments are welcoome
Tuesday, July 22, 2008
Sunday, July 20, 2008
Elliott Wave Count on Gold - IV
Gold prices declined from expected levels as there was a lot of overhead supply in the market. In my last update I had mentioned -
"The prices may touch level of $980 in the near term with crucial support now building at top of wave 1 i.e. $935.5. A smaller degree impulse is also in progression which has a target of $985. With two important fibo projections at $980-$985 markets may take a breather there"
and
"The weekly graph looks as if the gold prices are in a corrective wave 'B' of a higher degree flat or expanded flat correction"
By Friday gold gave up a large part of its weekly gains and ended much lower form the weekly highs. Now the market is poised to take an important turn in the next two weeks. If gold declines below $910 there would be a serious dent in the medium to long term bull market as the severe corrective phase make take time. Since we are just into the fourth wave, the time that market would take to turn up again would be significant. In the current week starting this Monday, if gold prices close below $950 it would mark the first sign of weakness and on a further daily close below $935 prices may enter a strong downward push.
A price channel has been in progress from $880 to $990. A daily close below $950 will break this channel and lead to a minimum price fall of $15 to $935. Take a look
Gold price Elliott wave structure is generally supported by a number of Japanese candlestick patterns. We have formed one at the recent high of $990. On Friday the market closed at the price where it opened, forming a doji. If gold turns higher from this level and forms a morning star, it could seriously test the recent high.
Since the current upmove looks like corrective and not impulsive as I wrote in my previous post along with a graph (http://sahilkaps.blogspot.com/2008/07/elliott-wave-count-on-gold-iii.html), the structure has to be adjusted to new data rigorously.
With crude oil cooling off there has been a lot of money flowing into the long gold and short crude pair trade. The gold oil ratio now stands at 7.4 and actually made a multi decade low of 6.4. On an average this ratio should be around 10 taking into account that in the long term this ratio reduces over time. I went in too early into this trade and it didn't serve well. But I think the time is right to buy any weakness into this trade.
Next important target for gold should be $880 if the current count of completion of wave 'B' in a larger ABC correction holds true. Now we have entered the 'C' wave of a larger degree according to this count. If gold prices rebound to $970 to $980 we should be sellers with a risk potential of $989. If prices do breach this point, there would be a threat to the count and a re-examination of the prices.
I will put up a post on Metals Market Perspective in few days. I note that metals have corrected significantly form their peaks. Still neither copper nor aluminium has invalidated its bullish wave count. Lets see what markets has in store and price will guide us to it.
Sahil Kapoor
"The prices may touch level of $980 in the near term with crucial support now building at top of wave 1 i.e. $935.5. A smaller degree impulse is also in progression which has a target of $985. With two important fibo projections at $980-$985 markets may take a breather there"
and
"The weekly graph looks as if the gold prices are in a corrective wave 'B' of a higher degree flat or expanded flat correction"
By Friday gold gave up a large part of its weekly gains and ended much lower form the weekly highs. Now the market is poised to take an important turn in the next two weeks. If gold declines below $910 there would be a serious dent in the medium to long term bull market as the severe corrective phase make take time. Since we are just into the fourth wave, the time that market would take to turn up again would be significant. In the current week starting this Monday, if gold prices close below $950 it would mark the first sign of weakness and on a further daily close below $935 prices may enter a strong downward push.
A price channel has been in progress from $880 to $990. A daily close below $950 will break this channel and lead to a minimum price fall of $15 to $935. Take a look
Gold price Elliott wave structure is generally supported by a number of Japanese candlestick patterns. We have formed one at the recent high of $990. On Friday the market closed at the price where it opened, forming a doji. If gold turns higher from this level and forms a morning star, it could seriously test the recent high.
Since the current upmove looks like corrective and not impulsive as I wrote in my previous post along with a graph (http://sahilkaps.blogspot.com/2008/07/elliott-wave-count-on-gold-iii.html), the structure has to be adjusted to new data rigorously.
With crude oil cooling off there has been a lot of money flowing into the long gold and short crude pair trade. The gold oil ratio now stands at 7.4 and actually made a multi decade low of 6.4. On an average this ratio should be around 10 taking into account that in the long term this ratio reduces over time. I went in too early into this trade and it didn't serve well. But I think the time is right to buy any weakness into this trade.
Next important target for gold should be $880 if the current count of completion of wave 'B' in a larger ABC correction holds true. Now we have entered the 'C' wave of a larger degree according to this count. If gold prices rebound to $970 to $980 we should be sellers with a risk potential of $989. If prices do breach this point, there would be a threat to the count and a re-examination of the prices.
I will put up a post on Metals Market Perspective in few days. I note that metals have corrected significantly form their peaks. Still neither copper nor aluminium has invalidated its bullish wave count. Lets see what markets has in store and price will guide us to it.
Sahil Kapoor
Friday, July 18, 2008
Crude oil Conundrum
Crude oil prices declined nearly $19 in the past three days. I wrote in many previous posts that a top in energy and precious metals was nearing. I think traders would have sold when markets closed below the important support of $135.14. I mentioned earlier that USD is also nearing an end to its downfall. That it is time to be cautious and not bullish in gold. That the whole dynamics of different markets can change as most markets stand at the brink of getting into a trending zone.
Crude oil prices have completed an ending diagonal pattern. An ending diagonal pattern suggest the end of an important uptrend and this could well be an important top for crude oil. Prices may decline to $102 before making any new top. Lets have a look at the long term price pattern and the market structure:
The crude oil price rise has been parabolic and there is a probability that if crude oil breaks the $122 mark the market will fall like a stone. When a parabolic market breaks it usually retraces the complete run up. The current prices retracement can stretch to $102 in the near term on a daily closing below $120.
The price dynamics of crude oil in the long term remains very strong. Crude oil remains in the long term bull market and it would continue to do so over a decade of so. The current decline would be a sort of correction in the larger trend. There are several pivot points in the crude price moves.
The Elliott wave structure of the current prices moves shows that we were in the 3rd wave of the primary bull trend and may have ended the third wave at $148 and begun the corrective fourth wave. The wave of one lesser degree was the 5th wave which ended in an ending diagonal triangle pattern and is now unfolding into an expected zig zag pattern. It is easier to look at it and understand.
The crucial pivot points in the structure of the wave stands at $126, $122. A break below these levels well confirm a fall towards $100 or lower. I feel the crude oil market has formed a top just $7 ahead of my expected top at $155. At least this is what the prices are telling me when they formed an ending diagonal with a double top and two evening star patterns at the top.
Crude oil prices may rebound to $135 levels after touching $126 or so. This would form the 'B' wave of the corrective ABC correction. A near term target now stands at $122 on a retest of $135 with a risk level of $139.
The fundamentals for crude oil has not changed overnight. As I mentioned in my previous post (http://sahilkaps.blogspot.com/2008/06/dynamics-of-oil-price.html) that there has been a demand destruction of nearly 2 million barrels a day and a supply rise of a million barrel or so, the market has weakened accordingly. Important point to note is that if crude surprise above $139 from here then it would again get into a zone from which it can make new highs. Previously it had formed a double top formation at $120. The current market top looks more promising and a few investment banks have come up with confirmed articles that Mexico is hedging their produce by selling short in the future markets.
Crude oil is now witnessing a lot of overhead supply and once it breaks the $125-126 range there would be a huge pressure of long liquidation which will increase the steepness of the fall. On the contrary we should be cautious for any price reversal that may arise.
Sahil Kapoor
Crude oil prices have completed an ending diagonal pattern. An ending diagonal pattern suggest the end of an important uptrend and this could well be an important top for crude oil. Prices may decline to $102 before making any new top. Lets have a look at the long term price pattern and the market structure:
The crude oil price rise has been parabolic and there is a probability that if crude oil breaks the $122 mark the market will fall like a stone. When a parabolic market breaks it usually retraces the complete run up. The current prices retracement can stretch to $102 in the near term on a daily closing below $120.
The price dynamics of crude oil in the long term remains very strong. Crude oil remains in the long term bull market and it would continue to do so over a decade of so. The current decline would be a sort of correction in the larger trend. There are several pivot points in the crude price moves.
The Elliott wave structure of the current prices moves shows that we were in the 3rd wave of the primary bull trend and may have ended the third wave at $148 and begun the corrective fourth wave. The wave of one lesser degree was the 5th wave which ended in an ending diagonal triangle pattern and is now unfolding into an expected zig zag pattern. It is easier to look at it and understand.
The crucial pivot points in the structure of the wave stands at $126, $122. A break below these levels well confirm a fall towards $100 or lower. I feel the crude oil market has formed a top just $7 ahead of my expected top at $155. At least this is what the prices are telling me when they formed an ending diagonal with a double top and two evening star patterns at the top.
Crude oil prices may rebound to $135 levels after touching $126 or so. This would form the 'B' wave of the corrective ABC correction. A near term target now stands at $122 on a retest of $135 with a risk level of $139.
The fundamentals for crude oil has not changed overnight. As I mentioned in my previous post (http://sahilkaps.blogspot.com/2008/06/dynamics-of-oil-price.html) that there has been a demand destruction of nearly 2 million barrels a day and a supply rise of a million barrel or so, the market has weakened accordingly. Important point to note is that if crude surprise above $139 from here then it would again get into a zone from which it can make new highs. Previously it had formed a double top formation at $120. The current market top looks more promising and a few investment banks have come up with confirmed articles that Mexico is hedging their produce by selling short in the future markets.
Crude oil is now witnessing a lot of overhead supply and once it breaks the $125-126 range there would be a huge pressure of long liquidation which will increase the steepness of the fall. On the contrary we should be cautious for any price reversal that may arise.
Sahil Kapoor
Wednesday, July 16, 2008
Market Mayhem - Price resolving!
Nifty drifted lower in last one week and made a new low. This has put up a serious question mark on the time that this downward push would take to end. Yesterday US markets saw volatility which was higher than any other day in past few decades. All asset classes moved violently between wide ranges. This is a sign of poor market sentiment.
The Nifty 50 has already come down to level of 3800 which is mentioned on a break below 4155. Since markets have broken the previous low, 3750 and 3600 looks on the cards. Nifty 50 formed a downward flag which could well have been a downward extension in the 'C' wave correction. Have a look at it
I would stick to my previous count and feel that 3800 is an important support and if broken would take markets down in a hurry. Any rise from current levels till 4000 to 4040 would be counter trending and opportunity to sell. If we move past 4040 then prices would resist at 4200. So there isn't enough strength and momentum in corrective rallies which makes the fall all the more intense.
Crude oil fell from highs of $147 to $136 yesterday and the Dow Jones Industrial Average recovered about 250 points from days low. The price action that unfolded yesterday was not good from a technical analysis point of view. If DJIA breaks below 10800 we are in for years of bear market and all upmove would be counter trending in nature. Equity exposure should be reduced if DJIA closes below this mark and gives any upmove. Most markets are standing at the brink of getting resolved into trending markets. Crude oil looks to have formed an ending diagonal pattern. If it breaks below $135 on closing basis, we could see $125 in a matter of hours.
Though fall in crude oil creates such a sentiment that stock indices recover significantly, there is little significance of such a fall. Last week when crude was trading at $137 the sentiment across the markets was bearish and it is still trading at $137 but the fall has made participant optimistic.
Financial and commodity markets look to the future and not the past. So if crude is going to top at $147 then markets would recover and move up as it comes down. However unless crude oil prices decline to about $100 levels there would be little that can end the current crisis. Indian markets are better off than other markets in all other parameters except the impact of higher energy prices. If this gets resolved we can see smart recovery in the stock market indices. As i mentioned earlier if RBI raises rates and INR stops depreciating along with a fall in crude oil price, the Indian stock market should recover.
If WTI crude traded on Nymex closes below $135 mark today or tomorrow there would be a recovery of sorts in most of the equity markets. Otherwise there is very little technical evidence that Nifty may stage recovery any time soon if it keeps trading below 4155.
I feel crude oil, precious metals and some agricultural commodities are in their last upward move and may correct violently in next few weeks or by September. The Euro is on its last upmove and the characteristics of the final upmove are evident in Euro against the USD. It is just a matter of time that these counters reverse and we are getting closer to it.
Equity markets may take time to recover if commodities cool off. The monetary measures may keep a lid on equity prices of some more time. Indian equity markets have value emerging in many sectors for a long term player. Markets reverse before the main street does. It is better to be investing in large caps by building up positions on steep falls as and when they come.
Sahil Kapoor
Comments are welcome
The Nifty 50 has already come down to level of 3800 which is mentioned on a break below 4155. Since markets have broken the previous low, 3750 and 3600 looks on the cards. Nifty 50 formed a downward flag which could well have been a downward extension in the 'C' wave correction. Have a look at it
I would stick to my previous count and feel that 3800 is an important support and if broken would take markets down in a hurry. Any rise from current levels till 4000 to 4040 would be counter trending and opportunity to sell. If we move past 4040 then prices would resist at 4200. So there isn't enough strength and momentum in corrective rallies which makes the fall all the more intense.
Crude oil fell from highs of $147 to $136 yesterday and the Dow Jones Industrial Average recovered about 250 points from days low. The price action that unfolded yesterday was not good from a technical analysis point of view. If DJIA breaks below 10800 we are in for years of bear market and all upmove would be counter trending in nature. Equity exposure should be reduced if DJIA closes below this mark and gives any upmove. Most markets are standing at the brink of getting resolved into trending markets. Crude oil looks to have formed an ending diagonal pattern. If it breaks below $135 on closing basis, we could see $125 in a matter of hours.
Though fall in crude oil creates such a sentiment that stock indices recover significantly, there is little significance of such a fall. Last week when crude was trading at $137 the sentiment across the markets was bearish and it is still trading at $137 but the fall has made participant optimistic.
Financial and commodity markets look to the future and not the past. So if crude is going to top at $147 then markets would recover and move up as it comes down. However unless crude oil prices decline to about $100 levels there would be little that can end the current crisis. Indian markets are better off than other markets in all other parameters except the impact of higher energy prices. If this gets resolved we can see smart recovery in the stock market indices. As i mentioned earlier if RBI raises rates and INR stops depreciating along with a fall in crude oil price, the Indian stock market should recover.
If WTI crude traded on Nymex closes below $135 mark today or tomorrow there would be a recovery of sorts in most of the equity markets. Otherwise there is very little technical evidence that Nifty may stage recovery any time soon if it keeps trading below 4155.
I feel crude oil, precious metals and some agricultural commodities are in their last upward move and may correct violently in next few weeks or by September. The Euro is on its last upmove and the characteristics of the final upmove are evident in Euro against the USD. It is just a matter of time that these counters reverse and we are getting closer to it.
Equity markets may take time to recover if commodities cool off. The monetary measures may keep a lid on equity prices of some more time. Indian equity markets have value emerging in many sectors for a long term player. Markets reverse before the main street does. It is better to be investing in large caps by building up positions on steep falls as and when they come.
Sahil Kapoor
Comments are welcome
Sunday, July 13, 2008
Investing Cycles!
Can't trade, its volatile.
Don't know where it is headed in the short term, but long term is good.
Shouldn't miss the next bull run.
Markets would go up surely in 2 to 3 years.
Best time time buy. Look at stocks, some are down 70%.
These are some of the latest market tantrums. If anybody doesn't want to miss the next bull run, then why isn't the market turning around? Though I am not going to try and explain these facts, but can sure look at past and evaluate what can be in store for us.
The Indian equity markets are one of the most volatile markets from a traders perspective. The percentage changes over a period of month or for years can be quite dramatic. So investing at the right time is an important aspect for everyone.
Most of the people who are not professional investors or traders invest when there is buzz around and buying stocks becomes a fashion. The systematic investment plan or sip is regarded as the holy grail of investing. It is a nice idea for someone who is new to investing but in reality it doesn't serve the purpose it is meant for.
Equity markets tend to move upwards in growing economic scenario for a longer period of time than downwards. For instance the Indian markets have been in uptrend for years since 2001 with periodic downturns lasting for a few months. Now a person who is investing into the equity markets with a sip would have a higher probability of seeing better returns if he invests for a longer period as the probability of market being above the 'average' is higher. SIP per se is not bad. But it is not for people who track the markets or at least invest rationally. Surely it is an easy way to avoid the noise and build better returns than other forms of investment.
Is there a better time to invest in these schemes?
Yes there is surely. I don't like postmortem of the markets, but analysis never harmed anyone. If we make a plan and invest by sticking to it, we can better the odds. We can follow a simple plan to invest our hard earned money into the markets. Lets see what options do we have now.
Firstly look at the real returns. Whether it is wise to consume or save. Currently there is little incentive to invest as inflation is too high. In the present scenario it is better to invest part in equity and a part in debt. Commodities are not an asset class and never will be. Commodities are not meant for investing, they are meant for trading. The best way forward is to invest in a liquid fund and switch all your money in debt to a fixed deposit when RBI raises rates above 10% and FD rates go up. A better way to time the markets is to look at the big corporate houses and look for lean period of demand for loans. That is the time to switch your debt component to FD and lock in a better rate. The corporate debt market is still active and there is still demand for loans. We are no at the top.
Another important point is not to borrow at these interest rates and repay all your outstanding loans. It would be better to pay off the loans now as the value of money is lower with higher inflation. That is what I mean when is say consume or invest.
The other component is the equity markets. It is important to own some equity always if one is not a professional investor or trader. Though Mutual Funds is an easy way of investing as you get some managers for your money. The other way is to build your own portfolio of stocks. The equity markets have a typical cycle which runs in tandem with the economic cycle, but with a lead.
We saw huge run in energy stocks. They peaked off and fell dramatically. We saw huge surge in health care, pharma. Now with these firms well off their peak, it is time to look at utilities. There are very few utility companies to invest into currently but few of them are available. As I wrote previously the better sector for present scenario are energy, IT and FMCG, we can look at specific bets in these sectors. RPL would serve better in energy, Infosys in IT, and ITC in FMCG. Since all these stocks have market beta so they would also correct with the broader market, but they have value to be bought into. In utilities, one should keep an eye on Tata power and Reliance infrastructure. There are other firms which are great buy at current prices such as Mundra Port & SEZ e.t.c.
Since most of the investor like to invest into equiyt markets through mutual funds, it is better to look at funds with allocation to sectors which can serve the purpose of wealth preservation. Since MFs are expected to change to better sector it would serve the purpose of timing as well. Still one should look towards funds having exposure to large cap and consumers (non-cyclical).
Most of the investors who look at markets and frown when they fall are missing out important opportunities. Since economic cycles are periodical, slowdowns and recessions should be accepted as a market phenomenon. There is an important shift in demographics which would result in higher economic growth in the long run. Market downturns gives us to cherry pick the sectors which we expect to perform better. By investing in particular sectors at particular time, we better our odds in the long run. Even the great investors like Peter Lynch and Warren Buffett buy things at the right price but at the right 'Time'.
Current market scenario looks quite gloomy and there is little investor interest. I think this is the right time to invest through systematic investment plans until inflation peaks off and then investing larger parts directly into the markets.
As far as the markets are concerned I expect there would be a period of weakness for some more time. But as a rule, I try to be less bearish as the markets falls and less bullish as the market rises. It leads to more objectivity. There is an old market saying - 'Intelligent investors are always running scared'
The greed is not out. Unless old money vanishes, new bull markets don't strengthen.
Sahil Kapoor
Comments are welcome.
Don't know where it is headed in the short term, but long term is good.
Shouldn't miss the next bull run.
Markets would go up surely in 2 to 3 years.
Best time time buy. Look at stocks, some are down 70%.
These are some of the latest market tantrums. If anybody doesn't want to miss the next bull run, then why isn't the market turning around? Though I am not going to try and explain these facts, but can sure look at past and evaluate what can be in store for us.
The Indian equity markets are one of the most volatile markets from a traders perspective. The percentage changes over a period of month or for years can be quite dramatic. So investing at the right time is an important aspect for everyone.
Most of the people who are not professional investors or traders invest when there is buzz around and buying stocks becomes a fashion. The systematic investment plan or sip is regarded as the holy grail of investing. It is a nice idea for someone who is new to investing but in reality it doesn't serve the purpose it is meant for.
Equity markets tend to move upwards in growing economic scenario for a longer period of time than downwards. For instance the Indian markets have been in uptrend for years since 2001 with periodic downturns lasting for a few months. Now a person who is investing into the equity markets with a sip would have a higher probability of seeing better returns if he invests for a longer period as the probability of market being above the 'average' is higher. SIP per se is not bad. But it is not for people who track the markets or at least invest rationally. Surely it is an easy way to avoid the noise and build better returns than other forms of investment.
Is there a better time to invest in these schemes?
Yes there is surely. I don't like postmortem of the markets, but analysis never harmed anyone. If we make a plan and invest by sticking to it, we can better the odds. We can follow a simple plan to invest our hard earned money into the markets. Lets see what options do we have now.
Firstly look at the real returns. Whether it is wise to consume or save. Currently there is little incentive to invest as inflation is too high. In the present scenario it is better to invest part in equity and a part in debt. Commodities are not an asset class and never will be. Commodities are not meant for investing, they are meant for trading. The best way forward is to invest in a liquid fund and switch all your money in debt to a fixed deposit when RBI raises rates above 10% and FD rates go up. A better way to time the markets is to look at the big corporate houses and look for lean period of demand for loans. That is the time to switch your debt component to FD and lock in a better rate. The corporate debt market is still active and there is still demand for loans. We are no at the top.
Another important point is not to borrow at these interest rates and repay all your outstanding loans. It would be better to pay off the loans now as the value of money is lower with higher inflation. That is what I mean when is say consume or invest.
The other component is the equity markets. It is important to own some equity always if one is not a professional investor or trader. Though Mutual Funds is an easy way of investing as you get some managers for your money. The other way is to build your own portfolio of stocks. The equity markets have a typical cycle which runs in tandem with the economic cycle, but with a lead.
We saw huge run in energy stocks. They peaked off and fell dramatically. We saw huge surge in health care, pharma. Now with these firms well off their peak, it is time to look at utilities. There are very few utility companies to invest into currently but few of them are available. As I wrote previously the better sector for present scenario are energy, IT and FMCG, we can look at specific bets in these sectors. RPL would serve better in energy, Infosys in IT, and ITC in FMCG. Since all these stocks have market beta so they would also correct with the broader market, but they have value to be bought into. In utilities, one should keep an eye on Tata power and Reliance infrastructure. There are other firms which are great buy at current prices such as Mundra Port & SEZ e.t.c.
Since most of the investor like to invest into equiyt markets through mutual funds, it is better to look at funds with allocation to sectors which can serve the purpose of wealth preservation. Since MFs are expected to change to better sector it would serve the purpose of timing as well. Still one should look towards funds having exposure to large cap and consumers (non-cyclical).
Most of the investors who look at markets and frown when they fall are missing out important opportunities. Since economic cycles are periodical, slowdowns and recessions should be accepted as a market phenomenon. There is an important shift in demographics which would result in higher economic growth in the long run. Market downturns gives us to cherry pick the sectors which we expect to perform better. By investing in particular sectors at particular time, we better our odds in the long run. Even the great investors like Peter Lynch and Warren Buffett buy things at the right price but at the right 'Time'.
Current market scenario looks quite gloomy and there is little investor interest. I think this is the right time to invest through systematic investment plans until inflation peaks off and then investing larger parts directly into the markets.
As far as the markets are concerned I expect there would be a period of weakness for some more time. But as a rule, I try to be less bearish as the markets falls and less bullish as the market rises. It leads to more objectivity. There is an old market saying - 'Intelligent investors are always running scared'
The greed is not out. Unless old money vanishes, new bull markets don't strengthen.
Sahil Kapoor
Comments are welcome.
Subscribe to:
Posts (Atom)
Posts
