Saturday, March 19, 2011

2011 – Year of Opportunity or Disaster

The first three months of this New Year 2011 has given enough headaches not only for retail investors but also for politicians and business men alike. The ruling congress government is one of the worst governments in recent times and in all probability should sit in the opposition benches if the electorates think prudently during the next general elections. The Congress government has failed in every aspect of governance and their only achievement so far seems to be signing the nuclear deal by buying MP’s and getting involved in scams almost every day. Congress is known for buying MP’s since the days of Narasimha Rao and it is no wonder they bought the MP’s again to save their face in Nuclear Deal. It is ridiculous on the part of prime minister to say that he did not authorize cash for vote to get the MP’s. No head of the government legally authorizes illegal acts and he has lost his credibility as a man of integrity. To make the matters worse, Wikileaks is releasing nasty information every minute and it seems US is just dictating how the governments are run around the world. I have never seen this many scams happening in such a short period of time and it looks like we need to either bribe officials or politicians to lead a normal life or become aborigines.

Impact on Market

Analysts blame Foreign Institutional Investors (FII’s) for whatever happens in stock market and it is high time they acknowledge the shoddy governance both at Government and Corporate level. No investor will invest billions of dollars confidently in such an environment and certainly not at a time when the companies in the western economies are doing well. FII’s started investing in emerging markets even though they knew how bad the corporate governance is just because the return in their own countries could not even beat the 1.5% inflation they currently experience. So for them it makes sense to invest and get out even with less than 10% gains in short durations and they don’t mind corruption or something else.



Nobody would have imagined these three months where governments in Arab nations are thrown around, Politicians are getting arrested in India, Businessmen are getting caught in scams, Oil and commodity cost is rising, Wikileaks is embarrassing all the governments, and even Mother Nature is causing damage in Japan. In fact markets have shown remarkable resilience for all these negative news flow because of the correction that has happened already.

Opportunity or Disaster

After spending significant amount of time reading financial news and expert ideas, I have come to the conclusion that the so called “Experts” are jokers or they act like jokers on the outset only to make huge money by misleading retail investors. If the market goes up, they all predict 22,000 or 25,000 SENSEX and if the market goes down 10%, they come up with crazy numbers like 12,000 SENSEX. They do not understand that no prediction can be accurate in stock market and more so when the sentiment is pathetically pessimistic. It is very hard for me to believe that they make bizarre Buy or Sell recommendation even after spending decades in stock market. So my take is that they (Experts and Brokers) do so only to make money and become rich. For example IRB Infrastructure has been recommended by almost all the brokers and experts as a good buy from Rs.270 levels and the stock has been going down all the time and still people are recommending. I do not know how many people shorted this stock and made millions.

But the silver lining amidst all the ruins is that these things existed in the past and still our markets have kept investors around the world interested and I do believe it will be the case in future too. In fact even worse scams could happen or fraud could be unearthed and nothing is ruled out in India. But one thing is sure that the country is remarkably resilient to withstand all these shocks and I believe we will continue to grow at a decent pace. In that sense I strongly believe that 2011 could be a year of opportunity for equity investors if they carefully construct a good portfolio and continue to invest if the market corrects more.

Why 2011 is Year of Opportunities?

If nothing bad is happening and everything is as optimistic as ever, then there is no reason for investors to sell equities and we will never get an opportunity to buy. Stock prices come down only at times like these and this has to be viewed as an opportunity. After all the mantra for even highly acclaimed investors is to buy and hold until you reach your target. When do the targets get reached? Only something bad happens. Markets are believed to reach the peak when the earnings become stagnant and earnings become stagnant because of something bad. It could be due to rising input costs, Oil crisis, recession or bankruptcy due to fraud and there are millions of reasons. If our idea is to buy the stocks when it is cheap, then why not now? If not now, then when? Of course people would say that the bottom has not formed yet and NIFTY will test 4800 or 4500 or whatever. But the prudent approach in front of us is to buy good stocks and create a portfolio now and continue to accumulate if the prices go down. This way investors will not feel that the market let them down in sudden uptick.

Markets usually discount all the bad news before everything happens and move up strongly before all the good things flow out. So waiting for the bottom is not a good option always and that too considering the fact that Indian companies have been coming up with decent results in spite of the bad environment, it is not the right thing to do. Almost all the mid caps have come down more than 35% from their peak and to go down from here, it would need an extraordinary situation for sure and the chance of happening that is remote though we can’t say it is not on the cards. Stock investment itself is a risky thing to do and if we have decided to be part of that, then these are some calculated risks that we need to take in order to be successful. So buying now and accumulating at lower levels will give good returns in the next 2-3 years time for sure. In fact personally I would be happy if the whole of 2011 pans out like this so that I can accumulate good stocks at fair prices and I will stand to gain when the market moves up who knows in 2012 or 2013.

Stocks List

As I said before, almost all the midcaps have come down more than 35% and some have corrected more than 50%. I am listing below some of the good stocks.

Yes Bank

Andhra Bank

Central Bank

Manapuram General Finance

Power Finance Corporation

Rural Electrification Corporation

Canara Bank

CanFin Homes

GIC Housing finance

BGR Energy

Reliance Infrastructure

SRF Limited

Shiv Vani Oil and Gas

United Spirits

Jain Irrigation

Bajaj Corp

ARSS Infrastructure

Thermax

Pantaloon Retail

Mundra Port

Spicejet

Voltas

IRB Infrastructure

IL&FS Transportation Networks

JSW Steel

And the list can go on.

Conclusion: This is the right time to buy stocks. Because you stand to gain If the markets go up from here and you stand to gain even more If the markets go down by way of accumulating at even greater prices.

Kumaran Seenivasan

www.stockanalysisonline.com

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