How to invest in the markets right now

I have been receiving a lot of queries on whether this is a good time to put money in the markets and how to go about investing in the market right now.

If you are new to the market
This is a god sent opportunity to put your money in the equity markets right now. Fundamentally we are a strong Indian economy (see no reasons for drastic change in fundamentals). I would recommend the following strategy (something which quite a few ‘experts’ too have been touting), each time the market falls 5%, put in 20% of your total allocation towards equities. I would strongly recommend picking some Nifty stocks and select mid caps. Any of the blue chip stocks (e.g. RIL), stocks in the infrastructure and related construction space, Cairn are excellent picks at the moment. One can also diversify by picking select banking and auto stocks like ICICI Bank, SBI, Maruti, Tata Motors. NTPC is a great pick when compared to valuation of Reliance Power. However, NTPC is usually a slow moving stock and hence can test investor patience in a bull market.

If you are already invested

Stay invested. Unfortunately there is nothing much you can do about it right now but sit patiently and wait. I suggest – take a long cheap vacation (or take a cheap vacation so that it seems long), go to temples/churches/mosques often and pray real hard. Per experts, markets could test august 2007 lows (close to 4000). But nobody can predict accurately how low the market will go from here (CMP nifty at 4545 while writing this article). Moreover, nobody can actually catch the market at the very bottom. (It will not take time for views to reverse if the trend reverses. Then we will have experts on TV telling us about new highs our markets will be testing). Remember, that given reasonable PE of 20-22 times in FY12 and earning CAGR of at least 20%, we should see Sensex at 45k levels in 2012 (CMP Sensex 15,059). And Warren Buffet is a great example for teaching us that long-term investments do pay in the end.

Real life horrors

Recently I have been meeting some clients who are really worried. No, it is not about the stock markets but it is about school admissions for their child/children. From the stories I heard, it seems that the business of imparting primary education through schools is a great business. Parents will go to any extent to pay bribes (mind you, no one wants to officially quote any school or person lest their child’s chances in getting school admission get jeopardized.)
Here are some real stories about school admissions in New Delhi
1) As soon as the short-list of this not-so-great school was put up on the school board (this was for admissions for kinder garden age 3+), a stampede of parents ensued. One man made his wife climb on top of his shoulders so that she could see the list from a height of 10 feet and read the short-list.
2) During the same stampede, there was a lot of push and shove by parents. One parent told another, you A** H**e, don’t you dare push me. I can push you back and really hard. (Hang on, I thought these were parents! How did they start behaving like school kids)
3) This one is a typical experience of most parents – they go for an interview for their kid of 4 or 5 years of age. The kid gets quizzed on identification of pictures and numbers and rattling off A-Z while parents get grilled on their education background and more importantly personal details like salaries.
4) There are other schools who claim to have fancier processes. For example, some schools have points system. So you get 10/10 if you are an NRI who has returned to India, 10/10 points if parents of the child have had an inter-religion marriage. In addition, there are points for the GD (group discussion) conducted for parents. This is not one of those IIM GDs but a mass interview where a panel of school directors line up parents and one by one each parent is asked “why would you like your child to join this school?” Ultimately when results come out, no reasons are sited as to why your child did not make it through the process. Sometimes I wonder if parents are over reacting to the importance of where you get a school education from. Did Kishore Biyani, Sunil Mittal, Arcelor Mittal, Narayanmurthy, Arundhati Roy, Aamir Khan attend the best of all schools. And anyway, when articles are written about successful people, everybody mentions the college they went to, rarely the school. Or is it that college gets determined by what school you went to?

Even a monkey can do a good job of stock picking

Last year when markets would go up an unbelievable 3-4% each day, there were a flood of recommendations from experts. It became hard to keep a track of each one of them let alone read all the brokerage house reports on companies. Udayan Mukherjee would say “We’ve touched yet another high.” Words like ‘happy’, ‘ecstasic’, ‘euphoria’ would be heard on business channels.

Since Jan 2008, there have been very few days when I heard anything good being said about the markets. First the experts advised that speculative money would have been killed in the January massacre. But February brought with it another freedom struggle as the nifty battled to maintain a positive stance. March has already started to prove the worst nightmares of bullish investors.

I am frequently asked, when this is going to end. (People are more interested in short-term views. I suppose when one is used to the good old days of watching stocks double in each quarter, people are looking for some ray of hope in the next few months.) Patience is wearing thin.

Frankly my answer to short-term view is - no one can answer that one for you right now. Fundamentalists are confused with contrary signals, technical analysts see no signs that can tell them for sure where we are headed 1 or 4 or 8 weeks down the line.

While majority of the nifty stocks look like a good buy at the moment, you do run the risk of a downside from current levels. But a better strategy once you buy is the ‘fill it, shut it, forget it’ for 365 days. Until a few days ago, the market was quite close to testing its 200-day average (called the 200-DMA) – a sign of bullishness or bearishness for technical analysts. There was a talk about best buys. But markets tanked below the 200DMA. Recently I heard a friend (working for a large MNC brokerage) remark that suddenly, from asking ‘what are the good picks’ (when markets were close to 200DMA), all long-term investors are in no hurry to invest now. From a talk about a 10-15% downside, now a new set of experts has emerged who are talking about alleged bearishness for 1 year and hence setting expectations of 2-3 year investment horizons.

Hence I feel that the time has come, when even a monkey can do a good job of stock picking for an investor right now.

Kiss… Kiss…. Kiss Kiss ko Buy Karoon, Kaise Fund Karoon… yeah bhi hai.. woh bhi hai…..

Indian markets have been going through quite a roller coaster ride. In 2008, the downhill has been rather steep and painful for a lot of investors. But the good news for new investors, and investors who have got new money (thanks to awesome bonuses), there couldn’t be a better opportunity that this to bet your money on select stocks.

Why have Indian markets been under performing in recent times?
Unfortunately, Indian markets have still not reached a matured phase and ours is largely a flows driven market. Retail investors are not movers in the Indian markets. Mutual funds though significant, are not very large as compared to FIIs that accounted for more than 35%-40% of turnover (monthly average for CY07 upto Sep07). As a result, when FIIs decided to book profits (to partly offset losses in US and European markets), Indian markets crashed. What added fuel to the fire was the leveraged positions in RelPower IPO by domestic investors.

Short-term (mildly bearish/neutral) – Markets are expected to be volatile for the next one month or more. But we have reached quite close to the bottom of the market.

Long-term view (bullish) – Fundamentally Indian companies are doing well and with a GDP growth rate of 8%, I believe that Indian markets offer great investment opportunities in that context.

Some long-term picks I would recommend are:
1) ICICI bank – CMP 960. Buy in range of 900-950.
2) JP Associates – CMP 226.5.
3) LT – CMP 3201
4) Reliance Industries – CMP 2292.
5) GMR Infra – CMP 156.25

More detailed analysis available to select readers on request.

(Market view for today i.e. 7-Mar-08 – Market likely to open negative. S1/S2 for today are 4800/4700 while R1/R2 are 4950/5050.)

If God were the Editor

If God Was a Banker

By Ravi Subramanian
Pushlished by Rupa & Co.
Price Rs. 195

When Chetan Bhagat wrote 5-point someone, he brought a refreshing change in the Indian writing scenario. Not only was his book non-intellectual and therefore could be read by everybody but it was also a short-n-sweet so that you it made a great bedtime or airport waiting time read. If you were an IITan you went nostalgic reading the book as you related to a lot of campus life aspects. If you were not an IITian, it offered a window of experience through which you see what you had missed. While he did create a revolution in the minds of readers as a first time author, his book seem to have been a harbinger of books with similar themes.
Harshdeep Jolly, one year my junior from IIMB published his book “Everything you desire” last year on similar lines. There is already a book out on JNU campus and now there is ‘If God Was a Banker’.

What happens when two boys from IIMs join a Foreign bank that has set up its retail operations in India? Sundeep is the typical city slick street-smart guy who is the jack of all trades and yet master of none. A natural glib talker, Sundeep from IIM-B impresses upon the India retail head using ideas from his intelligent but not street smart Tam-Bram Swami from IIM-A. Sundeep knows nothing about that area but Swami had given a discourse on that issue the afternoon before during their lunch break. And so, Sundeep impresses the hell out of his boss's boss. As Sundeep starts getting ahead with his career, he flouts compliance norms blatantly and receives favours (mostly in the form of sex) for helping in his junior’s career moves. While this helps him get ahead, it also creates trouble which he has to cover up, and in turn ends up getting ‘deeper into shit’.

On the other hand, Swami is a typical Tam-Bram, intelligent but honest; a doer but not a sucker. He is one of those who would very well fit the description of good guys come second when compared to the more successful Sandeep. For him, his family is the most important thing.

Sundeep has nothing against Swami to start with until enter Kalpana – his ‘hot’ classmate from IIM-B who decides to get married to boring Swami who probably never even held a girl’s hand before. Angry at loosing Kalpana to Swami, not because he loves Kalpana but because he always got what he wanted and Kalpana never even allowed him to bed her –even once, Sundeep’s passion and desire to get ahead becomes maniac-like. He vows to get ahead of Swami at any cost. And true enough, he does this through questionable means.

While the book started out on a good humorous note, less than a quarter past the book the author somehow gets too engrossed in the story-line rather than the story-telling aspect. The result is a Saas-Bahu serial outcome in the end with sleezy sex introduced in between.

I will caution the amorous reader that a lot of books have either an emphasis on the plot of book or on building up romance and sex scenes or a mix of both. Sydney Sheldon for instance has good sex and his plots are also quite thrilling. Mills and Boons (MBs) never bother about plots. But sex is steamy and as a reader you look forward to it. AJ Cronin never bothered about either but his writing has been a class apart. Edith Wharton has romance and sex in her books but written in such subtle ways and erupting in surprising places that you have to read it twice before you can believe it has happened. Of course her writing, as was Cronin’s belongs to an entirely different genre. This book disappoints on both counts.

Sex in the book is merely about when and where action happened. There is no building up of suspense, romance or tension in the description of whatever happened leaving the reader with a feeling that he has had salad without any dressing.

The story is simple but the ending comes across as a moral science story being told to a schoolboy leaving the reader disappointed.

My rating of the book 4/10

How a house-broker proposed to me and other incidents

The following incident happened more than a year ago when I had moved to Mumbai and was desperately looking for a house. Coming from Delhi, rentals were expectantly shocking but what really hit me the most was the quality of houses being shown by various brokers. I was also sick and tired of meeting owners who, in addition to the rental agreement demanded either or a combination of the following criteria –
a) Tenant could only be a Brahmin or Christian or a Gujarati or a Marathi – depending on the origins of the owner.
b) There were vegetarian colonies where the first question the broker asked was not whether you liked the house but whether you were a strict vegetarian.
c) Single women wanting to live alone were a ‘no-no’ for most owners. Where owners agreed to give it to single women, no men were to be allowed inside the house. One owner went to the extent of telling me that he would give me the house only if my mother would stay with me for the first one month so that I could prove that I was no characterless woman and that I was from a ‘decent’ family.
After more than a month of searching for the ‘right house’ in South Mumbai, I came across an advertisement in the Times of India classifieds that promised a fully furnished studio apartment in Colaba. I called the broker without too many expectations and what he said seemed rather encouraging - the house was a large 1BHK with kitchen and attached bathroom with a negotiable rental of Rs. 25,000. The landlady was willing to give it to any decent tenant without the usual fuss of asking my origins or what I ate. The broker said the rest of the terms and conditions were negotiable and could be discussed if I liked the house.
So off I went to meet the broker at Churchgate station. The broker, lets call him Mr. XXX (because he was like a villain straight out of a porn movie. A different matter that I no longer remember his name) was late since he had been showing houses all day. He said he needed coffee so off we went to a restaurant next to the station where he had coffee and he started asking me the usual barrage of questions that all brokers ask.
“ Are you single or married?”, asked Mr. XXX.
“ I am single”, said I.
“ Do you have a boyfriend?”, asked Mr. XXX.
“None.” I lied.
After having learnt the hard way in the past month that boyfriend is misinterpreted as boyfriends – in plural; by the owners and also tends to give an impression that you are a part time slut, I had decided that it was a better strategy to deny any kind of a relationship – no matter how platonic, with the opposite sex. Of course, no one thinks that a woman can be a lesbian (or a man can be gay) or at least they don’t seem to care if you are a lesbian.
“ How old are you?”, asked Mr. XXX.
“ 30” A lie again but for reasons that I did not want people to take me for a ride just because I look young. “But when are we going and seeing the house?”, I asked getting impatient since the guy seemed to be spending more time in the restaurant than required for a mere cup of coffee. Now he had even ordered battata-vada to eat.
He abruptly got up, paid the waiter and we took a cab to Colaba to see the ‘sea-facing studio’. I was taken to the first floor of the house and here was the much-touted studio- it was a 1BHK dump where space for a cupboard had been converted into a ‘kitchen’ (read space for placing gas stove). The bathroom had the main sink where the dishes were to be washed. This was Mumbai. I could not expect much with just Rs. 25,000 a month in Colaba! But this was exactly 5 minutes from my office.
“So do you like the place?”, asked Mr. XXX eager to get the deal going through.
“ I need to think about it. I do not like the house but it’s a stone’s throw from my office.”
“Really, where are you working?”
“Standard Chartered Bank”, I replied.
The name seem to have got him excited. “Oh! Given you are 30, you must be at some managerial level there then. So are you a branch manager? Anyway, do you plan to stay here alone? You know how tough life is for single women here. People are constantly interfering in their lives.”
“See, you are also single,” he continued, “and I am also single. I am sure you need some companionship. And I am from a very decent family. I own so-and-so building in so-and-so area. If you have not had a man in your life, you do need some support not just emotional kinds but otherwise. This house would be ideal for you. Anytime you need me, I will be there for you. This landlady is a very understanding Parsi lady. I am the lone son of my parents and I have a sister working in a senior management position in a PSU bank. ”
I was shell-shocked and speechless as he continued his tirade and started telling me about his sexual encounters in the past. “I want to tell you all about myself before we proceed. You do not have to tell me about your sexual exploits if you are uncomfortable. I will understand.”
Here I was in the middle of a supposedly cosmopolitan city which was considered a SAFE place for women. It was Delhi that is called the city of Rapists. Rapists lurk all over Delhi and the moment you get out of the aircraft; they pounce on you- that’s the reputation Delhi has had.
I muttered something about getting late and got into the nearest cab. Imagine the cheek the broker had to get into the same taxi from the other side of the cab saying that he too had to go to Churchgate. When we reached the station, I let him pay for the cab and ran into the nearest departing train.