Saturday, July 05, 2008

Why I Feel It's Not Time to Sell - Sainik

Analysts and fund managers are all asking us to be cautious and the bravest of the brave are asking us to nibble, by putting in around 10-20 percent of capital to work. Technical analysts are going berserk, saying they expect 2600. I read that if Nifty breaks 3800, we go straight to 2600.

But, hey, wait a minute, what is this I am hearing? Were we not being told that the Nifty at 6000 was cheap and one could buy with a 3-year timeframe in mind. All over we would be hearing the most pessimistic downward target of 5000 at worst, or best, depending on whether you were long or short. Today those targets have been halved.

The markets are driven on two pivots: fundamental and technical, i.e money flow. Surely, money was flowing inward at 6000 Nifty and it has reversed at 3900. However, at 12,750 Sensex, the PE for the Sensex would be around 12, with an expected EPS of 1050 for March 2009. Very rarely has the Sensex traded below 12 PE in the past. If we touch 9000, the Sensex would trading at 8 PE, which would be a lifetime first.

It is said that those who forget history are condemned to repeat it. At Sensex 12 PE, you are being asked to sell, and when the PE was more than 25, they were asking you to buy. Think and decide whether you want to believe the analysts or should you be using common sense instead. As they say, common sense is not commonly found.

The author is a stock broker of the NSE.

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Jim said...

You're quite right. Sell real estate but not stocks. The market may go sideways for the next 1-2 years fluctuating between Sensex 9000 and 15000. If you have a SIP keep it going because you're never going to catch the low.

Real estate is different. Prices are hughly inflated and the drop is usually over 2-3 years at least. Expect to see prices 40% to 50% less 3 years from now.

Deepak Shenoy said...

Sir, May I ask how we get a figure of EPS 1050 in March 09. As of today (July 04,08) the Sensex EPS is 810. (From bseindia site: 13,454 Sensex is 16.61 P/E)

So to grow to 1050 that's a 30% growth in 9 months? That will be a 40% annualised growth? I find that extremely difficult to believe in these times of a) high interest rates and b) global slowdown.

If we have only 10% growth going forward till march 09, which I think is more likely, EPS would be Rs. 900 in March 09. A 12 P/E on that is Sensex 10,800.

I would find some value around these levels (select stocks) but value in the broad market at say 3100 nifty or whereabouts.

sainik said...

dear shenoy,

i read ur own analysis dated april2 , 2007 (or is it some other deepak shenoy ??) in the blog : "seeking alpha" where it has been analysed that the reported sensex p/e on the bse website is wrong. the actual p/e is much lower , becos BSE considers annual earnins, vis a vis nse considering trailing 4 quarter earnings.

i hv taken a rough estimate of 850 from numerous research reports of both indian and foreign broking houses.

i have also taken projections based on these reputed broking houses.

one also needs to consider that the eps for companies like TISCO will be revised upwards due to its amalgamation with CORUS.

finally , i am unable to understand why the major companies in the sensex should not grow by 20 % , based on what the mgt is saying.

we recently got the results of infy where , even with caution they hv revised their rupee guidance upwards. Larsen mgt said recently that they will maintain a growth rate in excess of 35 %.

when people were super bullish in january 2008, i was sceptical. when people are superbearish now , i am still sceptical !!!!.




Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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