Market Strategy
Content
21st June 2008
MARKET STRATEGY
The inflation numbers, that were announced Friday morning were like a bolt from the blue. The street had braced itself for a double digit inflation following the petroleum product hike, but the figure of 11.05% bordered on the unbelievable. As a standard rule, when something that is not already discounted happens, the markets must immediately move to discount t hat. As a result, both the Sensex and the Nifty made newer lows, which technically make the markets weak. Since the violations of the key levels happened during the last hour of trade, and that too on a Friday, it does not augur well. If the daily charts look bad, the weekly look awful and the monthly dreadful. The weakness seen in the monthly charts is something that has appeared on the monthly charts after a gap of more than 5 years, which we need to take notice. We believe the RBI has it's role cut out. Expect Dr Reddy to tighten the noose on liquidity, raise rates and warn of further hikes if the incoming data demands. In an era of rising yields, we would expect the banking stocks to bear the brunt. Similarly the real estate sector stocks will continue to get the boot for some time. I don't see any reason why some one should like Indian real estate at this time, when the prices in the US have already taken a beating of 16.6%. Why would one want to take a currency risk and face other incidental problems by buying real estate exposure in India, when prices are yet to begin falling in India. With stocks at a steep discount to their issue prices, not to talk of the fall seen from the highs, these companies cant afford to dilute capital at this point of time because it will lead to massive dilution because of the low market prices now and secondly there is no appetite for such ventures. At a time like this, falling back on debt is costly and what ever debt has been taken, the meter ticks every second. At some point of time, it will not be comfortable for them to sit on inventory for a long time and real estate prices will have to fall.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
Anatomy of Bear Markets
We are in a market that is not behaving the way most investors have seen it acting in the last five years. You wonder why a stock is falling when the EPS is rising. Stocks no more climb past levels from which they fall. Companies are getting hammered on good news. And you don't jump out of bed anymore to switch on the TV to see what's happened to the Dow. You are right. It's a different animal altogether. It's a bear market.
Jan 2008
SENSEX MONTLY CHART
May 2006
Trend Reversal
Jan 2004
April 2003
HOW SENSEX STOCKS FARE IN BEAR MARKETS % FALL 1993 1996 1998 SENSEX = or > 80% > 50 < 80% > 20 < 50% > 0 < 20% POSITIVE RET 0.54 17 11 2 0 0.41 7 12 5 4 2 0.39 2 12 12 0 4
2001 0.56 3 7 16 2 2
AVRG 0.48 3 12 11 2 2
2008 0.29 3 16 7 4
But stocks don't fall in one motion. Their long downward journey is interspersed with brief halts and at times those misleading upward charges, which taper off before you yell "yahoo!" But if you are looking at the quarterly numbers to tell you to sell that stock, you will never get an early signal. By the time it shows up in the results, it might be too late.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
Let's go back to the heady days when tech was king. It's April 2000 and Infosys has just come out with its quarterly results. It has, as usual, bettered market expectations and reported a net profit growth of 99 per cent YoY and 16 per cent QoQ. For the next four quarters it will go on to report a growth of 100 per cent and 41 per cent, 134 per cent and 27 per cent, 125 per cent and 8 per cent, and finally 111 per cent and 9 per cent, YoY and QoQ respectively. With each passing quarter, Infosys kept on giving better results and the stock price went on tumbling. With an increase in the EPS each quarter and accompanying falling prices, Infosys became more attractive to the fundamentally minded, till the management gave a guidance for the full year that was lower than market expectations in April 2001.
April 2000 Price: 1300
Daily Chart of Infosys Tech
April 2001 Price: 360
Infosys had already fallen 73 per cent from its peak and then it was too late. By late October 2001, Infosys had fallen 84 per cent from its peak in March 2000. And if you thought only new economy stocks were the ones to be hit, think again. Mahindra and Mahindra fell more than 90 per cent during the 2000-2001 bear phase.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
Feb 2000 High: 332
Daily Chart of M & M
Sep 2001 Low: 25
To get a fuller picture of the escapades of bears, I studied the last four bear markets we have seen in our markets since 1990. The Sensex loses around 48 per cent of its value in a bear market. The smallest fall of 39 per cent was in 1994-96 and the largest, 56 per cent, in 2000-2001. On an average around 3 or 10 per cent of Sensex stocks fall more than 80 per cent. And around 15 or 50 per cent of the total 30 fall 50 per cent or more, while 2 stocks from the Sensex manage to keep their head above water during a bear market.
Monthly Chart of Sensex
1992 FALL 1994 FALL 1997 FALL 2000 FALL
CURRENT FALL
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
In the ongoing market, the Sensex has just tumbled 29 per cent, a far cry from the average decline of 48 per cent. So far only 3 stocks have fallen more than 50 per cent. The average is around 15 and the range is between 10 and 19 stocks. So even if you were to consider the lowest of the range, you still have 7 more stocks to see that kind of a fall. List of Sensex Stocks fell more than 50% FALL OF YEAR 1992-93 Sr.No. Name 2/4/1992 26/04/93 %Chg BSE SENSEX 4388 2037 -54 1 VOLTAS LTD 22.50 4.88 -78 2 TATA STEEL 277.04 73.10 -74 3 CEAT LIMITED 244.89 65.76 -73 4 ACC LTD 362.19 103.58 -71 5 TATA MOTORS 321.88 101.56 -68 6 PHILLIPS 251.9 84.73 -66 7 INDIAN ORGANIC 76.13 26.16 -66 8 RELIANCE 166.30 65.36 -61 9 PAEL 40.01 17.34 -57 10 TATA POWER 167.70 74.82 -55 11 BOM DYEING 569.13 257.50 -55 12 HIND.MOTORS 48.55 22.25 -54 13 GESHIPPING 52.20 24.63 -53 14 L&T 187.50 88.75 -53 15 BALARPUR IND 366.75 180.00 -51 16 ITC LTD. 28.35 14.01 -51 17 ZENITH COMP. 68.82 34.41 -50 FALL OF YEAR 1994-96 Sr.No Name 12/9/1994 4/12/1996 %Chg BSE SENSEX 4630 2745 -41 1 INDIAN ORGANIC 89.07 9.02 -90 2 BALARPUR IND 327.50 35.00 -89 3 MUKAND LTD. 385.00 60.00 -84 4 VOLTAS LTD 16.25 2.70 -83 5 BOM DYEING 490.00 86.50 -82 6 PHILLIPS 417.50 79.00 -81 7 CENTURY 445.00 87.30 -80 8 GUJ.ST.FERT 256.15 76.00 -70 9 HIND.MOTORS 48.00 14.25 -70 10 ACC LTD 254.96 78.66 -69 11 PAEL 86.71 27.00 -69 12 ADI BIR NUVO 298.63 95.26 -68 13 BHARAT FORGE 43.83 14.42 -67 14 GE SHIPPING 51.56 18.34 -64 15 CEAT LIMITED 145.12 53.97 -63 16 RELIANCE 164.37 68.54 -58 17 TATA STEEL 181.01 82.01 -55 18 SIEMENS LTD. 65.10 29.62 -55 19 GRASIM IND. 785.00 369.00 -53
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
FALL OF YEAR 1997-98 Sr.No Name 6/8/1997 20/10/98 %Chg -39 BSE SENSEX 4523 2764 1 SAIL 24.75 4.95 -80 2 ARVIND MILLS 140.25 28.8 -79 3 TATA MOTORS 396.5 93.55 -76 4 M&M 242.13 75.8 -69 5 TATA STEEL 122.53 40.32 -67 6 IDBI BANK 65.63 22.47 -66 7 GE SHIPPING 34.04 12.1 -64 8 GRASIM IND. 376 134.3 -64 9 TATA CHEM. 208.25 76.2 -63 10 IPCL 133.5 50.75 -62 11 HINDALCO 109.58 48.09 -56 12 SBI 318.81 146.33 -54 13 COLGATE 364 168.2 -54 14 HPCL 361.35 173.02 -52 FALL OF YEAR 2008 Sr.No 1 2 3
FALL OF YEAR 2000-01 Sr.No Name 11/2/2000 21/09/01 %Chg -56 BSE SENSEX 5924 2600 1 NIIT LTD. 406.89 11.55 -97 2 M&M 308.48 26.27 -91 3 NOVARTIS 1043.10 200.85 -81 4 INFOSYS 1245.37 276.42 -78 5 MTNL 378.55 111.00 -71 6 L&T 231.50 75.95 -67 7 TATA MOTORS 166.05 69.05 -58 8 AMBUJA CEMENT 41.95 18.80 -55 9 ICICI BANK 157.00 74.65 -52 10 INDIAN HOTEL 21.38 10.20 -52
Name 10 Jan 2008 20 June 2008 %Chg JAIPRAKASH 430.95 166.6 -61.34 RELIANCE ENR 2465.1 962.55 -60.95 DLF LIMITED 1142.2 456.35 -60.05
More importantly, the average duration of a bear market has been around 18 months. We are barely in our sixth. Have patience and keep your risk appetite intact.
Since markets do not fall in a heap at one go, we could see some bottom fishing happening at around 4200 in the Nifty, but this will be only temporary and of use to only position traders.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
MARKET STRATEGY
The inflation numbers, that were announced Friday morning were like a bolt from the blue. The street had braced itself for a double digit inflation following the petroleum product hike, but the figure of 11.05% bordered on the unbelievable. As a standard rule, when something that is not already discounted happens, the markets must immediately move to discount t hat. As a result, both the Sensex and the Nifty made newer lows, which technically make the markets weak. Since the violations of the key levels happened during the last hour of trade, and that too on a Friday, it does not augur well. If the daily charts look bad, the weekly look awful and the monthly dreadful. The weakness seen in the monthly charts is something that has appeared on the monthly charts after a gap of more than 5 years, which we need to take notice. We believe the RBI has it's role cut out. Expect Dr Reddy to tighten the noose on liquidity, raise rates and warn of further hikes if the incoming data demands. In an era of rising yields, we would expect the banking stocks to bear the brunt. Similarly the real estate sector stocks will continue to get the boot for some time. I don't see any reason why some one should like Indian real estate at this time, when the prices in the US have already taken a beating of 16.6%. Why would one want to take a currency risk and face other incidental problems by buying real estate exposure in India, when prices are yet to begin falling in India. With stocks at a steep discount to their issue prices, not to talk of the fall seen from the highs, these companies cant afford to dilute capital at this point of time because it will lead to massive dilution because of the low market prices now and secondly there is no appetite for such ventures. At a time like this, falling back on debt is costly and what ever debt has been taken, the meter ticks every second. At some point of time, it will not be comfortable for them to sit on inventory for a long time and real estate prices will have to fall.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
Anatomy of Bear Markets
We are in a market that is not behaving the way most investors have seen it acting in the last five years. You wonder why a stock is falling when the EPS is rising. Stocks no more climb past levels from which they fall. Companies are getting hammered on good news. And you don't jump out of bed anymore to switch on the TV to see what's happened to the Dow. You are right. It's a different animal altogether. It's a bear market.
Jan 2008
SENSEX MONTLY CHART
May 2006
Trend Reversal
Jan 2004
April 2003
HOW SENSEX STOCKS FARE IN BEAR MARKETS % FALL 1993 1996 1998 SENSEX = or > 80% > 50 < 80% > 20 < 50% > 0 < 20% POSITIVE RET 0.54 17 11 2 0 0.41 7 12 5 4 2 0.39 2 12 12 0 4
2001 0.56 3 7 16 2 2
AVRG 0.48 3 12 11 2 2
2008 0.29 3 16 7 4
But stocks don't fall in one motion. Their long downward journey is interspersed with brief halts and at times those misleading upward charges, which taper off before you yell "yahoo!" But if you are looking at the quarterly numbers to tell you to sell that stock, you will never get an early signal. By the time it shows up in the results, it might be too late.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
Let's go back to the heady days when tech was king. It's April 2000 and Infosys has just come out with its quarterly results. It has, as usual, bettered market expectations and reported a net profit growth of 99 per cent YoY and 16 per cent QoQ. For the next four quarters it will go on to report a growth of 100 per cent and 41 per cent, 134 per cent and 27 per cent, 125 per cent and 8 per cent, and finally 111 per cent and 9 per cent, YoY and QoQ respectively. With each passing quarter, Infosys kept on giving better results and the stock price went on tumbling. With an increase in the EPS each quarter and accompanying falling prices, Infosys became more attractive to the fundamentally minded, till the management gave a guidance for the full year that was lower than market expectations in April 2001.
April 2000 Price: 1300
Daily Chart of Infosys Tech
April 2001 Price: 360
Infosys had already fallen 73 per cent from its peak and then it was too late. By late October 2001, Infosys had fallen 84 per cent from its peak in March 2000. And if you thought only new economy stocks were the ones to be hit, think again. Mahindra and Mahindra fell more than 90 per cent during the 2000-2001 bear phase.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
Feb 2000 High: 332
Daily Chart of M & M
Sep 2001 Low: 25
To get a fuller picture of the escapades of bears, I studied the last four bear markets we have seen in our markets since 1990. The Sensex loses around 48 per cent of its value in a bear market. The smallest fall of 39 per cent was in 1994-96 and the largest, 56 per cent, in 2000-2001. On an average around 3 or 10 per cent of Sensex stocks fall more than 80 per cent. And around 15 or 50 per cent of the total 30 fall 50 per cent or more, while 2 stocks from the Sensex manage to keep their head above water during a bear market.
Monthly Chart of Sensex
1992 FALL 1994 FALL 1997 FALL 2000 FALL
CURRENT FALL
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
In the ongoing market, the Sensex has just tumbled 29 per cent, a far cry from the average decline of 48 per cent. So far only 3 stocks have fallen more than 50 per cent. The average is around 15 and the range is between 10 and 19 stocks. So even if you were to consider the lowest of the range, you still have 7 more stocks to see that kind of a fall. List of Sensex Stocks fell more than 50% FALL OF YEAR 1992-93 Sr.No. Name 2/4/1992 26/04/93 %Chg BSE SENSEX 4388 2037 -54 1 VOLTAS LTD 22.50 4.88 -78 2 TATA STEEL 277.04 73.10 -74 3 CEAT LIMITED 244.89 65.76 -73 4 ACC LTD 362.19 103.58 -71 5 TATA MOTORS 321.88 101.56 -68 6 PHILLIPS 251.9 84.73 -66 7 INDIAN ORGANIC 76.13 26.16 -66 8 RELIANCE 166.30 65.36 -61 9 PAEL 40.01 17.34 -57 10 TATA POWER 167.70 74.82 -55 11 BOM DYEING 569.13 257.50 -55 12 HIND.MOTORS 48.55 22.25 -54 13 GESHIPPING 52.20 24.63 -53 14 L&T 187.50 88.75 -53 15 BALARPUR IND 366.75 180.00 -51 16 ITC LTD. 28.35 14.01 -51 17 ZENITH COMP. 68.82 34.41 -50 FALL OF YEAR 1994-96 Sr.No Name 12/9/1994 4/12/1996 %Chg BSE SENSEX 4630 2745 -41 1 INDIAN ORGANIC 89.07 9.02 -90 2 BALARPUR IND 327.50 35.00 -89 3 MUKAND LTD. 385.00 60.00 -84 4 VOLTAS LTD 16.25 2.70 -83 5 BOM DYEING 490.00 86.50 -82 6 PHILLIPS 417.50 79.00 -81 7 CENTURY 445.00 87.30 -80 8 GUJ.ST.FERT 256.15 76.00 -70 9 HIND.MOTORS 48.00 14.25 -70 10 ACC LTD 254.96 78.66 -69 11 PAEL 86.71 27.00 -69 12 ADI BIR NUVO 298.63 95.26 -68 13 BHARAT FORGE 43.83 14.42 -67 14 GE SHIPPING 51.56 18.34 -64 15 CEAT LIMITED 145.12 53.97 -63 16 RELIANCE 164.37 68.54 -58 17 TATA STEEL 181.01 82.01 -55 18 SIEMENS LTD. 65.10 29.62 -55 19 GRASIM IND. 785.00 369.00 -53
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
21st June 2008
FALL OF YEAR 1997-98 Sr.No Name 6/8/1997 20/10/98 %Chg -39 BSE SENSEX 4523 2764 1 SAIL 24.75 4.95 -80 2 ARVIND MILLS 140.25 28.8 -79 3 TATA MOTORS 396.5 93.55 -76 4 M&M 242.13 75.8 -69 5 TATA STEEL 122.53 40.32 -67 6 IDBI BANK 65.63 22.47 -66 7 GE SHIPPING 34.04 12.1 -64 8 GRASIM IND. 376 134.3 -64 9 TATA CHEM. 208.25 76.2 -63 10 IPCL 133.5 50.75 -62 11 HINDALCO 109.58 48.09 -56 12 SBI 318.81 146.33 -54 13 COLGATE 364 168.2 -54 14 HPCL 361.35 173.02 -52 FALL OF YEAR 2008 Sr.No 1 2 3
FALL OF YEAR 2000-01 Sr.No Name 11/2/2000 21/09/01 %Chg -56 BSE SENSEX 5924 2600 1 NIIT LTD. 406.89 11.55 -97 2 M&M 308.48 26.27 -91 3 NOVARTIS 1043.10 200.85 -81 4 INFOSYS 1245.37 276.42 -78 5 MTNL 378.55 111.00 -71 6 L&T 231.50 75.95 -67 7 TATA MOTORS 166.05 69.05 -58 8 AMBUJA CEMENT 41.95 18.80 -55 9 ICICI BANK 157.00 74.65 -52 10 INDIAN HOTEL 21.38 10.20 -52
Name 10 Jan 2008 20 June 2008 %Chg JAIPRAKASH 430.95 166.6 -61.34 RELIANCE ENR 2465.1 962.55 -60.95 DLF LIMITED 1142.2 456.35 -60.05
More importantly, the average duration of a bear market has been around 18 months. We are barely in our sixth. Have patience and keep your risk appetite intact.
Since markets do not fall in a heap at one go, we could see some bottom fishing happening at around 4200 in the Nifty, but this will be only temporary and of use to only position traders.
Anagram StockBroking Ltd: Bandra Kurla Complex, Bandra(E), Mumbai 400 051. Web site: www.anagram.co.in Regd. Office: Anagram House, Darshan Society Road, Nr Commerce Roads Circle, Navrangpura, Ahmedabad – 380 009.
