23 May 2006 !!!

There will be plenty of problems in the future, but there will also be lots of opportunities.

My yesterday’s post began with quote - "When markets go up, there are no resistances; when markets go down, there are no supports”. I never expected that market will embrace my message so seriously. Anyway, this is not a matter of joke. The market is in serious bear grip.

Amidst all this carnage, it’s interesting to listen to market experts – This is a correction, Valuations have become attractive; Indian economy is strong and long term investor should buy.

This is absurd that people are still calling this a correction. If this is a correction, then what is a crash? Remember, in correction, one set of investors think they have made lot of money and book profits, and other set of investor, buy shares. Nobody dumps shares with nobody to buy. If this is a correction, then why FIIs are not buying?

Valuations have become attractive, and so people should buy shares. I just don’t understand this logic. Did markets fell because Valuations were expensive? In markets, robots do not buy shares; its people with lot of emotions who buy and sell shares. When markets go up, they buy in hurry, because they have a fear of getting left out. When markets fall, they do not buy because they know that tomorrow they may get it cheaper. That’s why when markets go up, they continue going up and when markets go down, they continue going down. Also, Valuation is a relative term – Sensex is valued at 16-17 times estimated earnings, more than the 12.9 times for the MSCI Emerging Markets index. So, it’s not mouth watering, as some people may want you to believe.

Indian economy is strong. I am not disputing this fact, but remember markets are about future, and perception of that future. The way Government of the day is running the business of the country, this perception may disappear soon. There have been no substantial reforms in last 6 months. I am seeing lot of dark clouds.

Please remember that all the market experts who are giving you advice to buy have a vested interest – but remember they don’t call the shots; it’s the FIIs who determine the direction. And they are saying with their action. Look at their daily sell figures. I also want market to go up, but remember markets do not reward emotions. Never fight with the trend. The same experts have been advising “buy” through the entire fall in last one week. When markets go down, it can go anywhere.

Is it good time to buy?

I am no expert. But logic says the time to buy has not yet come. Let me explain this. I know lot of people are puzzled on what has changed in last 10 days, that market is falling as if there is no tomorrow.

There has been a fundamental shift in the liquidity scenario worldwide, and Indian markets are witnessing that shift. Liquidity situation is worsening on back of inflation threat, and it will be a while when global liquidity situation improves.

I sometimes get very confused when experts say it’s a Liquidity driven market. Markets are always driven by Liquidity. Attractive Valuation only intensify the speed of upmove. In layman terms, liquidity implies market needs strong flow of money to go up.

On the argument of Valuation versus liquidity, it’s like saying I find this stuff very attractively priced but I don't have money to buy. No matter how attractive or worse the Valuations are - If liquidity dries out, market will not go up. Investors should not buy in hurry till we get clear fundamental signals that liquidity situation is improving. It doesn't matter that you have money to buy, what matters is whether of flow of money is good enough to take the market up.

In short term, markets may bounce back, and this should be used as an opportunity to exit from poor quality stocks, or stocks where you are making huge losses. I see that market may drift further, and will give ample buying opportunity at lower price. If you fear, that you will again be left out, which is not true, you can buy shares in small quantities. Remember, it’s better to be safe than sorry - Exactly.

I am sure, you will see less of messages like X stock is looking explosive, and may zoom to Rs. yyy, and after that sky is the limit. I hope this market correction would have taught what a limit is.

Remember, Reliance Petroleum was attractively priced at 86 few days back, and experts were pushing you to buy. If you would have bought even at 85, you would have been sitting at a substantial loss today. In bear market, waiting and buying in small doses are very rewarding strategies.

cheers,
nkpanjiyar

NB - The post is the outcome of lots of discussion happened with my like-minded friends.

Hi nk,

Excellent enlightening article. You look to be genious. This artcle should provide a good thinking to the peolpe who want to buy at this most unstable juncture. Hope wise thinkings will prevail.

Regards
chachi

chachi, I am just a beginner in stock market. Who can claim being master of market !!! Plz introduce. Thanks for all kind words and hope you are benefitted.

cheers,
nkpanjiyar

No my dear friend...I personally presume this is the time buy sell buy......
make less profits but carry back cash.....tell me, when is the right time to buy...no boss, even experts cannot predict it....the best time to buy any stock was last time this year (always 365 days back)...i hope you understand...but as of now, you can start picking up, put some more money in bag and enter even if there is more drift...if the market goes up, still you buy.....Will post on this later...

thanks and regards

ganeshhity
PS: my dear friend, what I presume is that rel petro was never a good buy even at 80...Correct me if i'm wrong....maybe, I have less knowledge as compared to you seniors..apologies for the same..

excellent writeup sir... cheers

Hi NK,
As always nice article.
Thanks a TON.Hope it will open eyes of many other persons.
Thanks again.Keep up your good work man.
God Bless You.
Disciple.

guys i m new to this share market. I was keeping a watch on market from 10-15 days though my interest was from 5-6 months. I dont know much about share market. I have rs. 5000 i want to invest it for 7 -8 days and if possible i want profit of around rs. 1000 can any one suggest some shares.

Hi sohan
Welcome to the forum

You want to make 20% profit in 8 days .Do you know what ROY you are asking for.
Market is not a gambling place. PUT it in FD till market sees stability. Then come back and ask. Save your money.

Pankaj

i would advice you the same. invest in fd and wait for trend to emerge. otherwise you are gambling.if you want to invest now, why not distribute some to our forum!!!!!.(don't forget me)

I would suggest the same or spend them on your loved ones rather than putting in market at this juncture...