The time for steady selling has arrived in Indian equity markets.

If you want to see a hit movie in a theatre, naturally there will be a huge crowd of people interested in watching this movie. But then you are given a chance to enter the theatre to watch the movie by entering either when there is a huge crowd at the exit as all the people are leaving the theatre or when there is a huge crowd at the entrance as all the people try to enter the theatre- which one will you choose? Common sense would dictate that one choose the former- enter the theatre when there is a stampede at the exit and leave the theatre when there is a crowd jostling & pushing each other to enter the theatre. Similarly in stock markets, one should buy in a bear market ( read when all the people are rushing through the exit of the theatre- selling their shares at ridiculously low prices ) & sell in bull markets ( read when all the people are& pushing each other to enter the theatre – buying shares at ever increasing very high prices).

Similarly, investors should start selling small percentage of their equity investments as the bull market is well & truly on in India. And as in the analogy above, the hit movie is the Indian economy’s steady growth & the crowd of FII’s rushing in to invest in Indian cos. is the crowd of people at the entrance of the theatre. If caution is not exercised by the rational investors then as might happen in a stampede, they might get financially hurt or worse be finacially crushed!

Herd mentality!

 The feelings of the crowd rather than being sum total of their feelings, nobody would subscribe to individually – as a bull / bear market develops, a lot of people are active part of it. And their feelings – bullish & extra risk taking in a bull market ; vice versa in a bear market- are so because they are part of a crowd & if they were not part of this crowd, then it is possible that their feelings would have been completely different. It is the herd mentality that makes people in a crowd have feelings that they might not have if they are not part of the crowd. In 1990’s the idea of all changing impact of I.T. leading to the dot. Com bubble etc..

If bear market is the best time to buy stocks/ other assets, then why don’t people buy during bear markets ?

In A Bear Market Its Easier For A Person To Admit That He Has Committed A Murder Or Has Stolen Something Than To Agree That He Owns Shares of a co.. Why so? Because the shares prices have been falling at a very fast pace for many months at a stretch, the gullible common investors who had bought foolishly at or near the top level of the indices –Sensex at 21300 in Dec2007,& at 6200 in Dec1999-have lost huge sums of money as it is common for the indices to fall 60% from their top- Sensex falls to 9000by Feb2009 & to 2900in Jan 2003. There is huge amount of negative publicity regarding owning shares. Yours truly also, when I started with speculation in 1999, lost all my meager savings. It was then that I decided that I will make huge sum of money . I looked for the people who hagd been the best in making money from equity markets. This led me to Warren Buffett, later Peter Lynch, Philip Fisher . By following the investment philosophy of these living legends, since 2000 my fund has been generating 30% compounded return p.a.. What that means is that Rs. 1 lakh invested under guidance of Vitastaa Investments & C. in year 2000 is worth about Rs. 10.6 lakhs by year end 2009.

p.s. I am wriring this blog after some time as the months of April, May,July, August, October, November January & February are the busiest for me as I have to update the financial performance of about 2000 cos. I keep track of.

Vision & its importance in invsting for a fortune!

Try to develop the vision to see where the sales & profits of the co. will be in future. I made huge sum of money by buying Hindustan Zinc at Rs. 14 / share in 2003 and the scrip went to a high of Rs, 1000 in 2007. You will see this happening again & again in the equity markets. In 2003, the N.D.A. govt. disinvested in . Sterlite ind. Bought the stake at Rs42/ share. The market price of was Rs.14-18 range. Every one could see that the shares of Hindustan Zinc were selling at a huge discount to the price at which a substantial stake of the co. was sold. I too saw that. And I bought about 5000 share at the price of Rs14. What also helped me in making this decision was that I had worked in Udaipur, Rajasthan. I had visited the plant of Hindustan Zinc . I had seen their mines. This helped in my buying the shares of Hindustan Zinc. That the global zinc prices were at a low was the added kicker. If the prices have been low for sometime of a commodity, then it usually means that the prices have hit a bottom & are headed northwards in future . Why other so called analysts, investors were not buying at this stage? The global economy was just recovering from the bursting of the i.t. bubble. There was fear all around. But an investor who did his home work of fundamental analysis on Hindustan Zinc, should have bought the shares of this co.. This is where the quality of an investor- firmness of character comes in. One has to have faith & conviction on one's investment decisions even though at that time nobody seems to see things that way or worse laugh at or ridicule your investment decisions.

Mr. Market and its importance.

Mr. Market and its importance.
 How to avoid being influenced by the fluctuations in share prices? As the father of value investing Benjamin Grahm rightly said, to avoid being mesmerized by the daily fluctuations in stock prices, imgine that there is one Mr. Market- representing the stock market- who daily comes up with quotes for the shares you own & other co. share prices too. Some times his quotes seem reasonable –around the time when equity markets are trading at reasonable valuations of P/E of 12-15- but at other times they are downright silly- in bear and bull markets. It is upto the investor how he profits from these quotations say by buying company shares cheap in bear markets and selling them high in bull markets.

greek tragedy & chinese real estate bubble!

Tremors in Greece ( on going global movie starring Greece as a troubled, high debt country, supported by Portugual , Spain & rest of european union) &
Bubble in Chinese real estate! – forth coming global premier.

Is it curtains for Indian economy because of on going global greek tragedty?Does the economic woe of Greece affect the decision to purchase a car or a house by an Indian? No it does not. What it, at its worst will impact is the sentiment of the people around the globe in a negative manner for a short time & in India for even a shorter period. Why so? This is elaborated below.
If anecdotes are to are to believed, the Chinese real estate market is in a bubble stage. If true- it seems to be so- then there will be an inevitable collapse of this bubble. That will be bad for the global economy. And for India also. But for India, to a limited extent only. Why so ? Because Indian economy is domestic demand driven. The collapse of real estate market bubble in China will lead to a falling demand for commodities across the globe & hence a fall in their prices. This will benefit Indian economy and Indian cos. also –except commodity producing cos.. This is what happened after the recession of 2008 in U.S.A.. there was all around collapse of commodity prices – crude oil fell from$ 145/ barrel to $45/ barrel levels & so on. After a decline in growth, Indian economy is back to its relatively high growth.
There is another silver lining- U.S. economy is officially out of recession & returning to positive growth.

Joke of the day!

Govt. should take up contracts for making explosives etc. used by the terrorists. this way, none of them will work when they are used- just like most govt. products & services!

DON’T RAISE THE INTEREST RATES!

DON’T RAISE THE INTEREST RATES!
With crores of indians living in abject poverty, what India needs is double digit growth. As Mr. K.V.Kamath, former M.D., I.C.ICIC, bank rightly & famously said that India needs to have single digit interest rates for double digit growth. The R.B.I. governor has to choose between moderate interest rates, high growth , moderate to moderately high inflation & high interest rates, low growth, moderate inflation. Common sense seems to indicate to me & to u all also that the former option is the better one. Let us hope & pray that the R.B.I. governor & present govt. also has it. ( which I personally doubt). So my guess is that we should be prepared for increasing interest rates in India in coming months.

INEVITABLE SUPER CYCLE OF HIGH CRUDE OIL PRICES.

Just about a decade back, crude oil price in 2000 was at a bottom of $10/ barrel. And in the seventies crude oil prices were in range of $3/ barrel. Then as we all know that was the meteoric rise of crude oil price to a high of $175 /barrel in 2008- a whooping increase of 17.5 times in just eight years – the previous high of crude oil being $33/ barrel in the 1990’s. The high of 2008 was an increase of 5.3 times over the high touched in 1990’s. By now you must get the drift. In 2008, with crude oil at a high of $175 / barrel, every body was expecting the price to go to $ 300/ barrel & more. But I made the correct prediction in my blog - www.rupeekul.blogspot.com- that crude oil is headed for a massive correction- read the blog dated 6june,2008- ‘crude prices at record highs’.
In India, retail prices of petrol, diesel etc. are heavily susidized by the govt.. At import parity , with present crude prices at $78/ barrel- the retail price of petrol will be approximately Rs 70/litre.
By conservative estimates, one can easily say that in the next cycle of increase crude oil prices, they might increase say 3-4 time their previous high of $175/ barrel. The next record high of crude might be in range of $525-700 /barrel. Hard to imagine, isn’t it? But then the crude oil price was just $10/barrel just as recently as 2000.Hence in future we are headed for super high inflation. Be prepared for it.

Falling exports-Re rise is not to be blamed!

While we have been happy with the growth of Indian economy in the recent global turmoil, it would benefit us not to rest on our laurels. Deep & far reaching changes are taking place in the global economy, India can not afford to be complacent. China is already the biggest economy in Asia -having overtaken Japan & the third largest economy in the world. China has already become the biggest market in the world in some products like automobiles, mobile phone users etc. having overtaken the biggest market in the world-U.S.A.-in this product category.
One remarkable fact worth noting amidst this rapid growth of China is that its currency, the Yuan, is far stronger than Indian rupee vis a vis the American dollar or the euro. One Chinese Yuan is equal to Rs. 5.68. If appreciating rupee is the cause for recent decline in India’s export growth- except the negative impact on I.T. software exports sector- ( as the so called economic experts are saying), then by that measure Chinese Yuan being 5.68 times stronger then rupee, Chinese exports should have collapsed. But that is not the case as shown by following figures :
• Merchandise exports ( 2007, $ billion)-China 969,India 126.
• Textile exports to U.S.A. ( $ billion)-China20,India 4.
This data indicates there is no negative impact of China having a far far stronger currency than India, on its exports. It is remarkable that even at 1$=Rs39.5, we have a far far favorable exchange ratio than China but still we are far far behind China not only in exports but most other competitive economic parameters also, as the following data shows :
• Electricity production (billion KW,2002) China 1641, India 597.
• F.D.I ($billion,2004) China 61, India 5.5.
• Tourist arrival (million,2003) China 33, India 2.4.
• Foreign exchange reserves ($,ending 2007 ) China 1.612 trillion, India 276 billion. One figure to note very seriously from this data is that China’s forex reserves of $1.6 trillion = India’s G.D.P. (2007)!
• Medals in Olympics (2008) China 120 gold, India 1 Gold.
So how does China do this ?a) Infrastructure development = rapid economic growth is the key to China’s stupendous economic success.
In Jan., 2007 , Industrial & Commerce Bank of China (I.C.B.C. ) came out with the largest ever I.P.O. of $ 22 billion ( Rs 88,000 Crores !). Post listing , I.C.B.C. market capitalization is double the market capitalization of entire Indian banking. The success of such mega I.P.O.’’s at Honk Kong stock exchanges is the reason for the premier stock exchange of New York being unhappy with the policies( read success) of Honk Kong stock exchange . But that topic is for another time . And in year 2002, Chinese banking industry was in trouble with estimated 30-40% assets as N.P.A.’s!
China is a major equity market in the world. The market capitalization of Shanghai & Shenzhen exchanges is close to $6 trillion ( Indian equity market valuation -$1.6 trillion ).
Whereas we cannot stop patting our back for having built the Delhi Metro
( at an astronomical cost of Rs 175 Crore /km i.e. Rs 10,500 for 60 odd kms. – to put this in perspective -enough to purchase 10 full bodied Boeing 747 aero planes !) , China was the first country in the world to commercially operate M.A.G.L.E.V- Magnetically levitated train.
On the contrary, the rupee appreciation is good for some sectors as well as the ‘aam admi’ as the imports become cheaper –main benefit being cheaper crude oil prices. ( India being net importer of crude oil).Remember in 1993, $1=Rs15-17. Cheaper gold. Cheaper international travel.( Imagine paying for a round trip airfare to Australia Rs 1400 only with $1= Re 1 ) . Less brain drain. In fact as per rumor mills, only section losing out on Re appreciation are the people who have money stashed away abroad in Swiss banks. And no prizes for guessing who these people are- the politici….
b) Emphasis on F.D.I.
: As the data above shows ,F.D.I. into China is 11 time the F.D.I. coming into India. It is better to allow foreign capital coming in to build assets rather than the money coming in as F.I.I. inflows. F.I.I.’s can always take their money out of Indian equity markets –that is the reason why Indian equity markets fall drastically with F.I.I. selling- but it is very difficult to do so if foreign money has been used to build assets like power plant, manufacturing units etc.
c) Focus on agriculture and increasing output
China produces 400 million tones of food grain from just 100 million hectares whereas India produces 108 million tones of food grain from its 146 million hectares. China rice and wheat productivity (kg per hectare) 6233 and 4155, respectively. India 3034 and 2688 respectively.
d) China –Global Impact
“China’s huge appetite for natural resources has led it t cultivate deeper relationship in Africa, Central Asia and Latin America. Last yea, it hosted a summit in Beijing attended at least by 45 African Head of states. The Shanghai Co-operation Organization founded with Russia & other Central Asian countries has become a crucial instrument of China’s energy security policy. The Chinese education Ministry approximates that there will be 100 million people worldwide learning Chinese as foreign language by 2010. Two decades ago Chinese universities attracted about 8000 overseas students : by 2008 that number would have leapt exponentially to 1,20,000”-source Rishabh Bhandari. It is also expected to emerge as the No1 tourist destination in the world with the beginning of Beijing 2008 Olympics proving to be the shot in arm for Chinese tourism.
Hence poor infrastructure and inept policies might be blamed for India’s lower growth and progress vis-à-vis China & the recent decline in exports but not the appreciation in rupee. This is the lesson, one hopes our P.M. has learnt well from his recent visit to China. The inept - one step forward and two backward –policies of Indian Central and State governments explains thought the Centre and state (govt. of J&K) are about to complete their tenures in power, the situation on ground in terms of roads, electricity etc. is as bad as ever. The situation is laughable if it were not tragic.
Every cloud has a silver lining:To conclude, the inadequate infrastructure etc. of India ensures that huge sum of money running into crores of rupees will have to be spent to improve it. This expenditure will ensure that we will have huge growth in economy in the years to come. I was in Thailand some time back. Leave aside the developed countries like U.S., Europe etc., India is even behind Thailand in infrastructure. while at present U.S., Europe are in recession Indian economy is growing in real terms @7.5% p.a.. Our community should try to benefit from this huge economic growth by investing in the equity of fast growing Indian cos..

Aristotle

We are what we repeatedly do. Excellence , therefore is not an act but a habit –Aristotle. This excellent quote of the great man is worth a billion dollars. It applies to all spheres of life including investing in the equities of cos.. in fact, the supreme success of living legend & the richest man in the world- my guru- Mr. Warren Buffett is a direct consequence of this quote. All the great men & women in other spheres of life also owe their success to this quote . It would benefit all of us if we heed these words of this great man