Indian Stock market Analysis

I am giving my opinions on most common questions asked by Indian Share market investors. Software professionals are questioning my negative opinion on IT sector for investment.

My only motive in maintaining this blog is “I may not always help you in making money but always try my best in reducing your losses”.

I successfully predicted stock market crashes in 2007 and 2008. I failed to predict stock markets bounce back from 14,000 to 21,000 in 2007. I believe in my hard work, knowledge, research, analysis and intuition and invest according to the best of my knowledge. I read and listen to the expert’s opinion but always write and invest according to my intuition.

Investor’s guide to Indian Share Markets:

Note before reading this post:

This post is not meant for traders and ultra-short term investors. I am writing this article for serious investors.

Important points to understand:

1. Current credit crisis is the largest ever in the history of United States.

2. It is the severe most problem faced by American economy after great depression in 1929.

3. Stock Markets took 20 years to reach pre-1929 levels after the great depression.

4. We may not use term “depression” for current financial crisis but we can safely call it as “Recession”.

5. Generally stocks do not move by current growth prospects but gain/lose according to the future growth prospects.

6. Investors generally overreact to good/bad news. Great investors always prepare for worst and invest accordingly.

7. Businesses run in cycles and we should plan our investments accordingly.

8. I know it is difficult to adjust to bear market when we saw the great Bull Run for 4 years.

9. 15% of stock market investments are held by foreign investors (FIIs). So, they will play crucial role in guiding stock movements.

10. If you believe in the growth of some company, you should continue to buy irrespective of short term falls. I bought L&T at 3,700 as well as 2,800. I will buy more of this stock if it falls to even below 2,000 levels. Accumulate more if you believe in a company. I will follow this strategy in buying Reliance Industries, ITC and Reliance Communications.

Why I am negative on IT sector?

1. Indian IT sector business was built on providing cheap services but not on provising creative services.

2. Price advantage in outsourcing fell from 1:6 in 2003 to 1:1.5 in 2008 due to rise in salaries of employees, according to Forbes magazine.

3. According to recent survey, Indian IT workers are less efficient and costlier than Eastern European engineers. They got more new contracts in 2008 than our IT companies. Watch out for Infosys analysis (they are aways honest) if you still believe in IT stocks.

4. Barrack Obama is openly expressing his negative opinion on outsourcing. It he becomes US president, it will be a serious blow to Indian IT sector.

5. Instead of taking bold decisions, Indian IT companies are following wait and watch policy thereby ruining investor’s wealth.

6. IT sector which is responsible for India’s recent growth story will be responsible for slowdown in Indian economy in the current financial year due to reduction in consumption.

Analysis of other sectors:

1. Last 5 years belong to IT sector; next 5 years belong to Retail, capital goods and infrastructure. After 2015, metals and agricultural sectors will rule due to scarcity of resources. L&T, Bharti Shipyard, IDFC are my favourite stocks in this space.

2. Those companies who hold mines will command a huge premium by 2020. We should always see a bigger picture and invest accordingly but not by day to day movements. Stocks like Tata Steel, Sesa Goa, Sterlite and Hindalco will rule markets by that time.

3. Telecom: Margins of these companies will be severely affected in the short term due to entry of new players. After bloodbath, survived players will command huge valuations. I am betting on Bharti Airtel and Reliance Communications.

4. Real Estate stocks will suffer heavily due to slow down in Indian IT sector because of oversupply and less demand. I am negative on DLF.

5. Private sector banks will be severely affected due to rising NPAs. They irresponsibly gave loans to companies and young engineers by believing in the growth story as it happened in America. Slowdown in the economy leads to rise in defaults. I am negative on ICICI bank.

6. Public sector banks will be severely tested by Government policies. But rise in rural consumption is a big boost for these banks. I am cautious on this sector.

7. Pharma stocks and FMCG stocks will once again become investor’s favourites due to their low beta.

8. I am still unable to decide on media and automotive businesses and how they will pan out.

9. DTH sector will see a huge growth in the next 2-3 years but margins are a concern in the short term.

10. Retail sector has potential for growth. Reliance Industries and Bharti Airtel are my stock picks but negative on Pantaloon due to increase in completion and valuation.

11. I am always negative on Airlines stocks despite huge growth opportunity.

12. RPL may be the safe stock for next 5-6 months. Be cautious.

Analysis of Stock Market movements:

Rise in inflation to 5.82% ruled out any rate cuts by Reserve Bank of India. UPA government is aggressively preparing for next general elections. Don’t expect any stock market aided decisions in the current financial year.

2008 will become one of the worst years for global stock Markets. Indian Stock Markets will fall to 14,000 levels due to slow down in American and Indian Economies. I am preparing for worst case scenario (13,000 levels) as it is better to prepare for the worst. I am advising conservative and new investors to stay away from stock markets until current credit crisis will give specific direction.

What we are now experiencing is a life time experience. Experts will talk about current crisis at least for another 20 years. So, just understand how severe the current crisis is. Don’t be swayed away by short term rallies. If you underestimate the current crisis, no one will save you. Be cautious.

Note: This post is not for traders and ultra-short term investors.