August 4, 2014

Golden Rules & Mantras for those Trying to Ride the Stock Market

Sadique Neelgund

The stock market is all about sentiments, the emotionally driven market most of the times remain either in over-valuation or under valuation zone. It’s all about greed and fear. However, in this mad rush you need to stay focused and maintain a lot of discipline in executing your investment strategy. Thus, you need to stick to your investment strategy without getting influenced by market sentiments except during some major changes or crisis. Here are some Insights, Golden Rules & Mantras for those Trying to Ride the Stock Market

Rajan magic helps market rally

When Raghuram Rajan took over the post on September 4th 2013, India’s currency the Rupee took a hammering as concerns about the country’s weak economy, high inflation, government inaction and a wide current account deficit sent the rupee plummeting against the dollar to nearly Rs 69/Dollar by August end. Only since Rajan took over at the RBI and imposed a raft of financial controls has the currency stabilized, and rescue the economy from what is shaping up to be the worst crisis since 1991. Rajan has received much credit for restoring calm in India’s financial markets after the mid-2013 crisis.

Table 1

Low*= Aug-13 stock low price & High* = recent high price

‘Modi’-fied: reform agenda drive stock market further

Indian shares continue to be supported by hopes that the new government led by Narendra Modi would fulfill its promise of reviving economic growth which is growing at its slowest pace in a decade. The triggers for further equity action will be the new government’s reform agenda. The sectors such as infrastructure and banks are sharply higher due to anticipation to restart industries like mining and infrastructure immediately and put many more strong policies in action which are long overdue.

While policy measures to revive the economy are likely over the coming months, India’s growth, fiscal and inflation metrics are unlikely to improve immediately. We expect GDP growth to continue to be below potential, at about 6 per cent this year. But it can go up to 7-8 per cent within 2-3 years. Worst is over but investment cycle is yet to pickup. It’s likely that market may quickly revert to tracking fundamentals, local and global. 

Table 2

Low*= Aug-13 stock low price & High* = recent high price

Investors must not lose sight of the risks involved

The temptation to make quick money is overbearing but the risk attached is disproportionate to the likely gains, Market moves in unrealistic manner and discount everything very early and responds in such a manner that small or retail investor always trap like in 1992 bubble of Harshad Mehta, then in 2000 Ketan Parekh ( IT bubble) and then in 2008 US meltdown of Sub Prime problem. They supply you with illusion, it was someone’s ability to sell dream to you.

People generally look for the returns and forget the risk attached to an investment. Investing without understanding or emotionally taking decision they many times end up with burning their fingers. And they empty their asset class then they says never buy/sell this asset because I lost lots of money in this. So always consider risk factor before making any investment.

At least dozens companies that have not earned any revenue and marginal promoter holding have skyrocketed in the rally. However, most investors don’t check the financials of the companies they put their money into and end up becoming scapegoats at the hands of market makers and speculators.

During rallies in mid-cap and small-cap stocks, retail investors need to worry of investing in stocks with no fundamentals. Investors need to verify basic information such as the Company’s business, Financial situation, Top management, Promoter holding, Industry peers, and Share price movement. Avoid company which has high debt and promoters or company has pledged substantial amount of their holding.

There are lots of values in midcap and smallcap companies but deploy capital with fundamental and technical approach. 

Some of Warren Buffet’s words of wisdom to keep in mind

1) Stock investing is buying a business,
2) Price is what you pay. Value is what you get.
3) If a business does well, the stock eventually follows.
4) Buy a wonderful company at a fair price than a fair company at a wonderful price.
5) What is within our control is that you can buy those shares which is below their fair value. But we can’t control market.

Table 3


Low*= Aug-13 stock low price & High* = recent high price

After bumper rally will market sustain?

Everyone is talking about a beginning of long and successful Bull Run. Everybody is excited and due to retail investor’s confidence, participation and conviction Sensex surged to a record high.

This is the first and most important rule of equity investment. Timing the market – entering the market at low levels and exiting at higher levels – is almost impossible. It is nearly impossible to judge when the market has peaked and when it has bottomed out. Do not play the guessing game; it is more sensible to put money into the market with a long term commitment.

So much attention is on new levels of Sensex & Nifty, that it is the time for investor to be cautious. Don’t look at Sensex and Nifty numbers. If you really think about numbers please look at company’s ROE, ROA, P/E, Debt to Equity, Price to Book value, Dividend Yield etc. So invest in good earning power company.

Many stocks still below 2008 level 

Table 4

High* = 2008 high stock price & CMP* = current stock price

Some speed breakers and pending challenges ahead

  • The monsoon deficiency may delay the rate-cut cycle.
  • Taming inflation remains top priority.
  • Unlock capital productivity – Projects are stuck to start and generating output.
  • Consolidated fiscal deficit – Decisive action for fiscal reform in very weak growth and weak tax revenue.
  • Job creation is the biggest challenge for govt.
  • What should be the energy security and strategy?
  • Capitalization of PSU banks.
  • Aggressive path for disinvestment OR Scale down subsidiaries dramatically with manage inflation.

Rules and Mantras

  • Stock price are governed by demand and supply, so keep booking profits at regular intervals. Nobody knows what is going to happen tomorrow.
  • Be a discipline investor and invest on regular basis, Invest accordingly with your goals and needs.
  • Don’t get emotionally attached with stock, Write down your target & stop loss and stick to it.
  • Don’t time the market but give time in the market.
  • Select right investment avenue or product based on your Goal, Time horizon, Risk appetite and asset allocation.

We generally try to find as to how the stock markets are going to behave in next 6-12 months. Isn’t it difficult to predict even their direction?


Authored by,

Siddharth Doshi

Moneycare Se. & Fin. Ser. Ltd

One response to “Golden Rules & Mantras for those Trying to Ride the Stock Market”

  1. Dillon says:

    Today, while I was at work, my sister stole my iphone and tested to see if
    it can survive a forty foot drop, just so she can be
    a youtube sensation. My apple ipad is now broken and
    she has 83 views. I know this is completely off topic but I had to share it with someone!

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