Market has corrected in recent times substantially and there are
few trends which are driving the markets in near term like Global Energy
Prices, Inflation trends, Impact of Monsoon on Inflation, Leading economic
indicators (cement dispath, Auto sales etc), Interest rate / Bond yield
movement, Valuation of Sensex, FII Investment trend and Profit Margin situation
of Sensex Companies & Future Expected Trend. We are at a stage where
a 5% to 10% correction in the stocks can turn investors bullish. We will discuss
the reasons for that here. We were picking few
quality names in Indian consumption stories, coupled with few export oriented
companies which have long way to go. We will continue to add them in our
portfolio. Infact, a few names become so attractive that, we have advised
subscriber to invest upto 15% of their portfolio into these stocks. Why not,
Concentration in quality names, leads to wealth creation as we have seen in
last 20-30 years.
There are stocks in the market today
that are quoting at 60 pe and those wih 20 pe. It is the nature of the market
to overrate companies that are showing high growth rates and punish those that
have temporary setbacks and not growing as much. There is a glamour element in
stock markets just as in Bollywood. A fundamental investor should screen
through those companies that are undervalued in such-times due to temporary
growth hurdles but are likely to increase their profits soon. The best ones who
can show this behavior are the sector leaders who are in the unpopular phase of
growth. They generally have the best people and resources to turnaround.
Benjamin Graham calls them unpopular large companies’ model.
This is a “low risk and high
probable way” to increasing your wealth. This looks obvious but is difficult to
practice as it requires a mindset change, patience and belief that money is not
going to be made overnight. It requires you to not be fully dependent on the
markets and that you should have a full time occupation that will distract you
from the regular moves and moans of the stock market.
It serves our interest to remember
that valuations are relative to the times we are in, the mean growth of the
industry and other sentiments. So it is impossible to develop a model where you
buy low and then sell high, as the discovery of high or low is only possible in
hindsight.
Which are the companies that are sector leaders and going through a temporary phase of low growth? Who are most likely to get back to high growth? Are they cyclical businesses or secular growers?
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