Before i start the post since many months the warnings have been very clear to readers to be very selective and look towards defensive stocks.
Also with the index we have kept it simple that in Panic there is no Logic so one may not try to brave and go buying falling stocks rather focus on quality. Some of the stocks i have kept mentioning are Aditya Birla Nuvo ( is now back to entry price of 820) , Godrej Inds, Smartlink, Nesco and Cements on large caps. Also SBI may be looked as a long term SIP candidate.
In simpler terms lets look at where could the index be on fibonacci retracements --
check detailed link here - https://www.nooreshtech.co.in/2011/11/sensex-bse-midcap-bse-small-cap-dollex-30-technical-charts-and-retracement-levels.html
On fibonacci an ideal retracement woul dbe 50 % or 61.8% in case of normal corrections which are not preceeded by mad bull runs ( 2007 was so we saw 73.6% retracement in 2008 )
For Sensex it comes to around 14500/13000.
( We saw a 61.8% retracement in 2004 election fiasco though it did not stay for a long time )
For Nifty
It comes to around 4300/3800 if we take Oct bottom or 4400/4000 if we take March 09 bottom.
Now other way to look at it is from a perspective of P-E for Nifty and Sensex.
Currently as per consolidated EPS -
Sensex ---- TTM EPS --- 1025
Nifty --- TTM EPS -------- 328
Forward fy 12 ( we just have 3-4 months left for it )
Sensex --- 1148
Nifty –--- 361
Now fy13 eps estimates are at
Sensex --- 1296
Nifty ------ 410
This implies on trailing 12 months we trade at roughly ---- 15 times Sensex and 14 times Nifty
For FY 12 ---------- 13.5 times Sensex and 12.9 times Nifty
For FY 13 ----------------- 12 times Sensex and 11.3 times
Suppose fy 13 does not see as expected growth and may be just 5% still then the eps would be closer to 12-13 times fy 13 earnings which by no chance is expensive or over valued.
The general band has been around 9-12 in worst case on trailing twelve months in panic times like 2008 or before. So we are in detoriating fundamental scenario in 2011-2012 rather then a panic of 2008 so we may consider that we are at the lower end of the P-E band and any further drop makes it a good risk-reward buy area for long term investors.
Technically we would still wait for a turnaround to buy high risk stocks till then will continue the strategy to buy quality stocks and finish buying by 14000-14500 and 4300-4500 range for investment. Also should be ready to see a notional drop of 10-15% on the portfolio. We are on high alert to look for any panic or turnaround signals !! as nobody can spot a bottom but one can spot a turnaround little higher then the bottoms
Till we are in quality stocks and defensive ones the current drop is interesting but we would look into high-beta stocks only at the lower end as mentioned above.
Fortunately few of our quality stocks have not been hit badly and if they are in further cracks will be more then happy to add them with a longer term view.
Also of late i have got a few questions from people like shall i sell at 4600-4700 and cover at 4200-4300 the stocks which i have bought. Should i get into high cash.???
My answer is such a thought process is clear indications of panics and generally this leads to sharp cracks in midcap/smallcap stocks. For now the time to shift to cash is gone. Only thing that can be done is shift to quality stocks :).
Disclosure: The above view is purely with a long term perspective and please do your own research. Its easier for us to say long term as we have been of the view to be on high cash since 19000/19900 and been very selective so current downfall has hit the investment portfolio but very marginally and notionally
This is the best time to learn,research and strategize to benefit the max out of the next cycle. For that you can always join our technical training programs. For more details call Kazim 09821237002 for the training schedule.
HAPPY INVESTING,
Nooresh Merani
nooreshtech@analyseindia.com ( If you would like to talk to me please drop in a mail with your contact details)
( Any body who would want more personal guidance may drop in a mail to us also on analyseindia@analyseindia.com )
Nooresh Merani - An IT engineer by qualification and Advisor/Trainer by profession.