The markets have moved up by around 270 points (on the Nifty) in the past few trading sessions. The reasons attributed are
1) The IEA's actions of emergency release of oil (bringing down crude prices sharply down)
2) A fuel hike by the government. "Smart rally in the oil and gas space post the government hiking fuel prices along with auto and banking stocks helped the Nifty add 55 points."
A fuel hike is good for stocks like ONGC etc, but why should it bring up auto and banks also?
If the fuel prices increase, people would buy less cars (and travel by bus or something), so why should it affect the auto sector (in a positive way)?
Do you see any justification of this recent rally or would you consider it merely a "false breakout" (even though it has been backed by moderately good volume)?
A fuel hike is good for stocks like ONGC etc, but why should it bring up auto and banks also?
In any market, there are dozens of major factors that take it up or down.
I don't think the fuel price hike was primary reason for the upmove.
The market was oversold and in the absence of any fresh negative news, it has bounced back.
Indian markets have been under-performing since the last few months and that's why bears don't seem to be too eager to keep their short positions open for long.
In any market, there are dozens of major factors that take it up or down.
I don't think the fuel price hike was primary reason for the upmove.
The market was oversold and in the absence of any fresh negative news, it has bounced back.
Indian markets have been under-performing since the last few months and that's why bears don't seem to be too eager to keep their short positions open for long.
In my opinion,the fact that Indian markets have been under performing should be a strong reason for the bears to hold short positions. According to technical analysis, the trend is assumed to continue till it reverses. There have been few stocks among Nifty components and outside Nifty which have underperformed so much they look like they are never going to start an uptrend.
Some stocks have even reached the lows of 2008.
Some stocks have even reached all time highs.
I wonder what to make of the saying "Most of the stocks follow the index".
Once it breaks that, then we can officially consider it to be the end of the bear phase which started at the end of the last year. I'll just sit back and enjoy the show. (I have no money to invest/trade, so that's the only thing I can do now.)
What would be the best approach for a trader/investor in a ranged market other than staying away? Is there any way to take advantage of out-performing stocks?
What would be the best approach for a trader/investor in a ranged market other than staying away? Is there any way to take advantage of out-performing stocks?
Only way to take advantage of out-performing stocks is to buy them. .
For an investor:
It is easy for an investor to make money in a bull market, especially in a bull market like the one we had in 2003-2008.
It is extremely difficult for an investor to make money in a bear market.
Making money in a range-bound market is tricky and only those investors who are good at stock picking, make money in such markets.
Even though the Indian markets didn't go anywhere between 1992 and 1999, there were many stocks that created enormous wealth in this period.
e.g. Hindustan Unilever (Hindustan Lever).
For a trader:
A trader can make or lose money in any market. .
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If an investor expects the market to remain range-bound over an extended period, he should invest in stocks where growth is assured, but the investment should be done at a reasonable price.
Only way to take advantage of out-performing stocks is to buy them. .
For an investor:
It is easy for an investor to make money in a bull market, especially in a bull market like the one we had in 2003-2008.
It is extremely difficult for an investor to make money in a bear market.
Making money in a range-bound market is tricky and only those investors who are good at stock picking, make money in such markets.
Even though the Indian markets didn't go anywhere between 1992 and 1999, there were many stocks that created enormous wealth in this period.
e.g. Hindustan Unilever (Hindustan Lever).
For a trader:
A trader can make or lose money in any market. .
-------------------------------------------------
If an investor expects the market to remain range-bound over an extended period, he should invest in stocks where growth is assured, but the investment should be done at a reasonable price.
Thanks for the reply.
I guess one can buy the outperforming stocks. But personally I feel a bit nervous/skeptical of buying a stock which is going up/already gone up a lot compared to the index. I want to get rid of this caution/fear.
And there were few occasions when the stocks I bought outperformed the index but did not offer great benefits.
Ex. I buy Axis bank @1300 and Sensex is at 18000.
If after one month Sensex is @17000 and other banks and other stocks have fallen down approx. 5- 7% and Axis bank is still trading in 1300-1320 range, I don't get to reap the benefits. This is what I originally wanted to put across but could not do it.
The whole idea is to look at the India consumption story and pick the companies which have the potential capacity and skill to expand many fold without compromising on quality and integrity
Here is the Standard Chartered report predicting India for the next 2 decades. Really amazing opportunity exists for companies. Link
Examples: Stock - Price Rise in 5 yrs
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TTK Prestige (3000 from 86) Percentage change 3388%
Hawkins Cooker (1730 from 63) Percentage change 2646%
TITAN (237 from 27) Percentage change 778%
Page Industries (1968 from 240) Percentage change 720%
Zydus Wellness (670 from 195) Percentage change 244%
And the best part is the growth story for them will unfold truly in the next two decades.
The list of the mutibaggers are definitely interesting. However, one of the properties of the markets is that they look very obvious when looked retrospectively. As Soren Kierkegaard (A great philosopher) said - 'Life is understood looking backwards, but it must be lived forwards.'
The whole problem is to predict what would happen at the right end of the chart. That is where all the skills of the chartist/fundamental analyst come to light.
As we get towards the right end of the price graph, even the most perfect trends tend to be dangling in uncertainity.
There is still potential of reasonable return if not phenomenal like the last 5 years from these consumer names.
A sum of Rs 10,000 invested in Infosys in 1993, yielded Rs 3,90,00,000 (3.9 Crores) in course of next 18 years. An appreciation of 3900 times. Thus if one can identify an opportunity and expect the scale of things to unfold, there is a interesting journey to make.
A sum of Rs 10,000 invested in Infosys in 1993, yielded Rs 3,90,00,000 (3.9 Crores) in course of next 18 years. An appreciation of 3900 times. Thus if one can identify an opportunity and expect the scale of things to unfold, there is a interesting journey to make.
I am not sure how you came with that number. I have read somewhere that the IPO price for Infosys was Rs.100. (Ironically, Infosys was undersubscribed and hence had to be bailed out). Now the price of the stock is around Rs.2900. That would be a price appreciation of 29 times. (I haven't taken into account splits/bonuses/dividends etc.) But I am not sure how you got such a large number - 3900 times?
A sum of Rs 10,000 invested in Infosys in 1993, yielded Rs 3,90,00,000 (3.9 Crores) in course of next 18 years. An appreciation of 3900 times. Thus if one can identify an opportunity and expect the scale of things to unfold, there is a interesting journey to make.
Out of these 18 years, most of the price appreciation had taken place in the first 7 years.
Someone who had sold Infosys in early 2000 and instead invested in Nifty would have made more money than someone who held on for the next 11 years.
Once the growth story of a stock becomes widely known, there is a good possibility that stock has become overvalued (at least in the medium-term).
An investor who had bought Infosys shares in first quarter of 2000, would have underperformed the markets in the last 11 years.
The average price of Infosys in Q1 of 2000 was 8878.82 (adjusted for 2000 1:1 split).
Adjusting for subsequent bonuses, the average price was 1109.85.
The average level of Nifty in Q1 of 2000 was 1633.76.
Infosys has appreciated 164.37% since Q1 of 2000 (9% annualized return).
Nifty has appreciated 244.43% since Q1 of 2000.
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Some IT stocks like Wipro still haven't crossed their 2000 highs.
Average price of Wipro in Q1 of 2000 was 5199.41.
Adjusting for bonuses:
2004 2:1
2005 1:1
2010 2:3
Average price = 519.94. Today the stock is trading at 423.15.
It's not that Wipro has not grown in these 11 years.
Revenues for FY 2000: Rs 2,254.74 crore.
Revenues for FY 2011: Rs 26,935.40 crore (12 times increase).
PAT for FY 2000: Rs 248.26 crore.
PAT for FY 2011: Rs 4,843.70 crore.(19.5 times increase).
In spite of this phenomenal growth, the stock has given negative returns in this specific period.
If after one month Sensex is @17000 and other banks and other stocks have fallen down approx. 5- 7% and Axis bank is still trading in 1300-1320 range, I don't get to reap the benefits. This is what I originally wanted to put across but could not do it.
That's how the market works.
There isn't much you can do about it. Holding an outperforming stock isn't enough to make money.
A stock may give a negative return even while outperforming the general market. That happens in a bear market.
A stock may give a positive return even while underperforming the general market. That happens in a bull market.
An investor who is good at predicting the direction of the general market has an equal chance (maybe a greater chance) of making money in the long-term as compared to an investor who is just a good stock picker.
Someone who had sold Infosys in early 2000 and instead invested in Nifty would have made more money than someone who held on for the next 11 years.
Once the growth story of a stock becomes widely known, there is a good possibility that stock has become overvalued (at least in the medium-term).
An investor who had bought Infosys shares in first quarter of 2000, would have underperformed the markets in the last 11 years.
The main problem with the IT story was the bubble build up during 1999-2000, which was not supported by actual profits and stocks were trading at astronomical P/Es
However, for the consumer stocks it's more of a earnings based growth story and the inflation-proof nature attracts investors irrespective of the macro situation.
For a growing company, trailing P/E is hardly relevant, the most important factor is the P/E/G ratio based of forward P/E . Hence on a forward basis the stocks are not that costly.
The consumer story will unfold truly in India in the next two decades and although prices can correct people will cook foods ( preferably in pressure cookers!!!), wear sunglasses, watches and jewellery (preferably branded!!!) need inner wears (premium ones!!!) and drink healthy (Sugar free, Acti Life).
So this one is a much more visible growth story with reasonable growth opportunities if not phenomenal.
Last edited by Prudent_Investor : 3rd July 2011 at 04:47 PM.
For a growing company, trailing P/E is hardly relevant, the most important factor is the P/E/G ratio based of forward P/E.
Even at the 2000 peak, the PEG ratio for Wipro was just over 1.
FY 2001 eps turned out to be 28.59 compared to 10.72 in FY 2010.
That was a growth of 166.7%. (All IT companies were growing at a phenomenal rate in those days).
Adjusting for split and bonuses, the eps for FY 2001 was 2.859.
A stock price of 520 meant a forward PE of 181.88 and a forward PEG of 1.09.
There is no doubt that consumption will keep increasing as the Indian economy grows, but ultimately growth rates of all sectors in the economy converge to the growth rate of the overall economy.
Abnormally high growth rates don't last forever.
HUL showed amazing growth in the 1990s, but once competition emerged from newer FMCG companies, HUL lost its way and has been an under-performer for a decade now.
HUL's revenues for CY 2000 were 10808 crore and for FY 2011 the revenues were 17988 crore. That's 66% growth in around 10 years.
People have not stopped using HUL's soaps or toothpastes or tea or shampoos, but HUL is struggling for growth.
I am not saying that all the companies that you have mentioned, will stop growing from this year onwards.
However, a time will come when their growth rates drop down to 10%-15% or maybe even less.
Higher is the PE that an investor buys a stock at, more sure he has to be about the future growth.
It is interesting to note that the resistance (number one) at 5620ish, I mentioned in Market Rally - True or False? is now trying to act as a support. A clasical "role reversal" where a resistance becomes a support. It reinforces that this is most likely a medium term trend reversal. Unless some fundamental news drags it down, most likely the markets appear to "catch its breath" for a furthur move upwards.
(http://chartink.com/painter.php?&v=b...95~289~003399&)
I think we might make all together new highs to suck the retail investors in. They are still sitting out.
Possible.
Europe has managed to postpone a big accident and what we saw in last few days was a relief rally.
The rally may or may not continue further. I don't know. The market still appear range-bound to me and it seems we are just bouncing from one end of the range to another.
Market Rally - True or False?
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Linear Mode
