stock market correction

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CORRECTION’ s WHY ???????????? Shadows of Economic Prosperity in India in Retrospection of the Capital Market

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Recent correction in 2008 : History Repeat it Self

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This is a story of my personal experience of Stock market, in 1992 when I was in college at the time of Harshad Mehta my Father put 2 lacks in stock market boom in 1994. At that time it was equivalant to recent high at 21 K when every common man was putting money in the stock market as in Recent time ( Reliance power issue ). It was a feeling why we put money at the time when market outperformed and near to speculative stage, afterwards we Blame the stock market ????????? It was at the time of Harshad ( 1994 ), Ketan ( 1998 ), IT bubble (2000 ) or so on in 2004 , 2006 and 2008 ???????? I entered in this market in the year of 2005 when Sensex was around 8K..then it went on to 12,782 ( Every one was putting money in RPL Issue ) in the month of March-April 06 then it came down to 8,879 on 22nd may 06. It was a bigger correction after 2004 around 32% from the peek level of Index at that time I personally have seen every hard core trader stayed out from the market for at least 2 to 3 months . At that time when sensex was at 8,879, if somebody had presumed that the Market would reach 21K , with in two year, I think hardly one would have believed, isn’t it ? But it was true, like As per my personal Assessments from 13.5K it will move to 34K in the year of 2010 June…

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Why it will go 34,000 ?????????? According to Fibonacci Numbers ( 1,3,5,8,13,21,34,55,89,144,……… ) Market started with the base no. of 100 in 1979 then moved to 3K , than at the time of Harshad it moved to 5K. In the correction it came down to 3K , then again move to 8K in 2004 , then again corrected to 5K , and moved again up to 13K in 06 and again corrected down to 8,879 and than moved to 21K and again correct to Fibonacci No. around 13,900 or not still ??? Then it will move to 34K ? Interested, But these are FACT ?????? 1……..3……..5…………8…………….13………..21…………...........34………..55

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Based on the May- bottom cycle ,I had already argued that Time-wise, this cycle may keep the market under pressure till at least Apr-May of this year ….If, by May, index holds the downside to its 200 EMA then May-Bottom Cycle would open upside for the Market. Remember, the Sensex , at Jan 08 low of 15,332, has already lost 32% , which is a usual phenomenon of every two years, even during the current bull phase . In 2004, it lost 32% from 6,250 to 4,227. In 2006 it lost 31% from 12,671 to 8,799. The bigger, 8-year cycle, however, calls for a much bigger, 55% cut, every 8 years. In 1992, index lost 57% from 4,546 to 1,980. In 2000, it lost 58% from 6,150 to 2,594. We all see “if and when” the 8-year cycle takes over , would take that call by May 08. The values on the Yearly Channel for 2008 year would also be about 14,200-500 on lower side and 28,200 on the upper side. The Sensex has now dropped below the channel, though marginally, showing thankfully a long lower on the candle as hit 15,332.

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The May –Bottom Cycle The current bull- phase is now more than four years old, wherein Sensex multiplied 7 times from 2904 ( May 03) to 21206 ( Jan 08 ). Cycle studies indicates the Sensex tendency to hit a high in the first quarter every year during this bull run, and low near every May. Since we already have an important high ( 21,206 ) in Jan this year , we may look bottom in coming Apr-May in line with the cycle study. The low at 15332 hits the trend line joining May 2004 and June 2006 lows, which the index is desperately attempting to hold. The 8-Year Cycle The much bigger cycle is the 8-year cycle, As shown on the chart below, 1984 was the beginning of 8-year bull run till 1992. In my Super-Cycle Degree count, shown on ASA Long-Term chart, I have, in fact, taken it as the beginning point for the most dynamic 3rd wave.. The next two important turning points occurred exactly 8 years thereafter, in 1992 and 2000. Both these turning points were marked by stock market scams, wherein the leaders of the rally had extremely difficult time later. For example, ACC, the leading stock of 1992 bull market, remained below its high till end 2004. Similarly, the IT stocks, which were leaders of 2000 rally, had lost as much as 90% of their top valuations by the year of 2003. This year, we are sitting on this very important cycle, which therefore, may throw up similar possibilities.

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GLOBAL MELTDOWN Global volatility at higher levels indicates churning in the thinking of the major players in the market. Such a churning could also be a "GLOBAL“ phenomenon. The ASA World Index, combining 49 stock market indices across the World shows a major bottom in Sep'01, when WTC towers collapsed. Last year, Apr'2006, is the 55th month counted from there. This throws up a Fibonacci time zone for the global markets as well .Price-wise, post Sep'01 rally achieves 161.8% ratio to the previous rally from Oct'98 to Apr'00. April'2006 is about the 21st, 34th, 55th & 89th month, all Fibonacci Numbers, from the previous bottoms in Jun'04 (4613), May'03 (2904), Sep'01 (2594) & Nov'98 (2741) respectively. This is besides the 2-year time cycle shown for many years. These cycles had been indicating that we could be in for a major top in the market. SO, WATCH OUT FOR A BIGGER CORRECTION

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THE MAY PHENOMENON Time cycles indicated major turning point The following chart shows that all the Major tops and bottoms in Sensex' history have happened closer to every alternate March, with a tolerance of 1 or 2 months. The list of major tops since '2000: Topped at 6150 in Feb'2000 Topped at 4462 in Feb'2001 Topped at 3758 in Feb'2002 Topped at 6249 in Jan'2003 Topped at 6696 in Jan'2005 Topped at 14238 in Jan'2007 Topped at 21206 in Jan'2008 March'2008 is on the 2-year cycle, which was discovered and shown since many years ago.

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Global Environment- A bit tense US economy shows signs of slowdown Synchronized rise in interest rates seen in Euro zone, Denmark, Turkey, South Korea, India, Colombia, Japan and UK Global inflationary pressures are building up Geopolitical concerns (Lebanon, Iran, North Korea) to keep oil prices high Global growth to moderate and become more balanced as Japan, Euro zone, Australia, UK and Emerging markets pick up the slack in the US economy

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Commodities – back on the uptrend Geo political issues raising supply concerns has pushed crude oil price to new highs. Inflationary pressures and global uncertainties along with fundamental demand has firmed up gold prices Supply constraints, low inventories and good demand shall keep base metal prices high Global engine shall keep commodities on firm footing

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Crude Oil- Trading higher Israel-Lebanon conflict Deepening Iran adamant on continuing its nuclear program Terrorist activities in Nigeria, insurgency in Iraq, show no sign of abating Missile tests by North Korea resulted in crude oil touching new highs Traders factoring in the possible supply disruptions in the wake of Hurricane season- Demand may rise on account of just kicked off summer driving season ahead in the US.

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Gold – recovering some of the losses Gold has undergone a massive correction falling 22% from its peak in May’06 but is gaining back the turf. Volatility in metal prices and strength in USD are the main Causes Factors supporting the rebound Structural supply and demand imbalance Safe-haven demand on geopolitical concerns- Iran, Iraq, Nigeria, Venezuela Rising global inflation amid rising crude prices US short-term rates approaching a peak Expected USD weakness on account of structural imbalances

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Indian market – Negatives • Earnings growth in FY08, to be realised in an environment of rising interest rate and inflationary scenario coupled with higher base effect • Over dependence on FII flows; now exceed domestic institutions in size • 40% of $15.2bn flows over CY03-04 through PNs • Vulnerable to US rate cycle behavior • Scope for setbacks in progress of reforms • Rising geopolitical tensions (Iran & Lebanon) • Rising crude oil and commodity prices • Inflationary pressures

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Investment Outlook Concerns continue to remain on US structural weakness, high oil prices, rising interest rates and soft landing of the Chinese economy. Concerns remain on high fiscal and current account deficit, currency management and rising interest rates. Investors are advised to be cautious and should consider investment avenues like bank deposits, RBI Bonds, Liquid Plans and Floaters. Equities remain attractive with a long term perspective as the Indian economy is expected to be among the fastest growing economies of the world.

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MARKET STRATEGY Market driven by India re-rating, robust economic & corporate growth and liquidity. Rally was top heavy and centered around select pivotal. Money chasing few stocks as seen at the flag-end of the rally. Most sector top picks are trading at 30 plus price multiples. Valuations run huge 'Earnings Risk' in such a scenario. Margin for error very thin as market would be severe on any earning slip ups.

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SECTOR OUTLOOK India growth story remains intact Macro fundamentals remain as strong as ever. Recent correction throws up good opportunities for stock picking. Our EPS stress test throws some of the best value prices for stock with 12-15 months outlook

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Why to Invest In Stock Market?? Again………….

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Highest asset paying class Corporate earning to grow of minimum of 13.5% Sensex has given an average return of 19% YoY Basis Only 2% investor invest in stock market Wealth Creation Money works for us Best Way to Hedge Risk Is TIME!!! Examples like Warren Buffet, Rakesh Jhunjhunwala, Infosys Crorepati

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India’s GDP Amongst other Emerging Economies

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Equity – The Way to Go.. Historically India’s GDP has grown @5.88% & Stock Market has grown@17%CAGR Sensex will appreciate @17% if PE remains the same

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FII APPROACH FOREIGN OWNERSHIP - STILL DECENT UPSIDE POSSIBLE

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Retail Investor Participation

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CAPITAL MARKETS | WEALTH CREATION

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STOCK MARKETS | WEALTH EFFECT

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The Long Term Bull Market

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Stock Market Journey Remember correction of 2006

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How to Invest?

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Sectors for Investment Infrastructure i.e Metals / Cement / Energy Construction & Engineering Auto & Auto Ancillaries Textiles Banking & Financial Services Consumer Goods Technology & Telecom Retailing i.e Forward & Backward Channel Paper & Sugar Pharmaceuticals & Healthcare

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Investment Principles Invest for Real Returns Keep an Open Mind Never Follow the Crowd Everything Changes Avoid Penny Stocks Hunt for Value and Bargains No-One Knows Everything

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Investment Rules in Volatile Market Always Invest in Research Based Products. Draw a line between Stocks for Investments and Trading. Ensure proper Margin of Safety. Don’t invest on Street Rumours. Regularly Consult your Investment Advisor. Restructure your Portfolio according to Future Potential.

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LONG TERM INDIA - A GREAT STORY

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Investing in India is a call on GDP growth We expect the GDP growth to be robust because of Increased domestic consumption driven by a younger population Significant investments into infrastructure An upswing in the capex cycle fueled by a robust demand growth Real GDP to grow at 8+p.a. over the next three years

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SENSEX Where is it headed ?

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Strategy Deploy fresh funds only if planning to invest for long term (2 yrs and more) Focus on fundamentally good ideas which have underperformed the rise in the Sensex

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Conclusion Power lies in simplicity, discipline & consistency If in darkness India can shine and give us returns of 18% CARG for two decades… Imagine the future scenario with substantially improved infrastructure, better fiscal management

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Transition from Small / Mid cap to Large cap Business Stages and Market Valuation Strong fundamental growth and PE re-rating trigger Small / Mid caps to transition to Large caps

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Growth Followed by PE Re-rating

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India Inc. is going global Some classic examples…

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Primary market activities (IPOs) India is the 8th largest IPO market in the world* Huge listing gains across the sectors…

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Will the numbers continue to grow? Favorable market environment and regulations High growth economy Paradigm Shift in corporates’ scale of operations Increasing Foreign investments Increased M&A activity Easy availability of capital More special situations are possible Growing GDP Increasing Foreign Investments

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Acquisition & adding new business lines United Breweries Holding Holding company for several diversified businesses United Spirits & Breweries; Kingfisher Airlines Have stakes in Chemical, Infrastructure & Pharma businesses Sep 06 UB Group plans to consolidate all spirits business under United Spirits UB Holding is the major stake holder June 07 Acquires 26% stake in Deccan Aviation Makes open offer to acquire additional stake of 20%; Consolidated market share, over 30% Source: Bloomberg

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Asset plays Century Textiles 5 fold rise in share price since Jan 05 Significantly revamped its cement business Asset play (lot of institutional interest – 20% stake) Plans to develop prime properties, such as Mill Land at Worli, Mumbai 3rd Jan 05 – Rs. 183.45 31st Oct 07 – Rs. 1,059 Source: Bloomberg

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Acquisition & Listing of subsidiary Aban Offshore Oct 07 Plans to list subsidiary Aban Singapore on Singapore SE Sep 07 Acquires rigs from Bulford Dolphin Dec 06 Initiates Open Offer to Acquire further stake in Sinvest June 06 – Acquires stake in Sinvest ASA Source: Bloomberg

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Divestment of promoters stake Bank of Rajasthan Source: Bloomberg

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Potential Contra Bets Information Technology Once a favorite sector, has lost investors’ interest Appreciating Rupee Fundamentally very strong Earning growth >25% Sector quoted at 90% premium to Sensex (04-05) is currently quoting at par with Sensex A strong case for Contrarian Investing

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Potential Contra Bets Auto Sector was the buzz word of rising India with booming car & bike sales Hardening interest rates have affected the outlook for the sector Sharp reduction in PE values relative to Sensex A strong case for Contrarian Investing Long term consumption story still intact & valuations looks attractive

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Portfolio construction Special situations Recently announced Investment Strategy Potential special situations` Contra play

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Blue Chip Portfolio Volatile times do test the patience & conviction of all investors. While the market looks good for investment perspective, the days of across-the-board short term windfall gains are over. As the market sentiment turns from irrational exuberance to rationalism, we expect the corporate performers to be rewarded while the underperformers may be taken to task. In such a scenario, we advise investors to be selective in their investment choices. This Blue Chip Portfolio has zeroed in on companies with stable Business models, Visible growth Prospects and above all visionary managements who have stellar track records.

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Sector Allocation