Wednesday, December 17, 2014

morning thoughts...

The markets stayed extremely volatile and saw cracks in many stocks after a long time and giving oppurtunities to many a investors and traders to deploy fresh cash as the markets move into oversold zones.
Technically the markets now move into oversold zones and can witness a pull back after a weak opening.
The Indian markets have retreated from their life highs recently. 
While the reason for the fall does not concern us too much; we are interested in making good use of it! True to Warren Buffett's investing style, we believe in being greedy when others are fearful. After all, the best time to buy high quality stocks is when they are marked down. But what should we buy in this market? If markets were truly pessimistic, we should expect to find many stocks trading cheap, especially mid and small caps. However, this is not the case today. 
A good way of gauging market sentiment is to compare the valuations of midcap and largecap stocks. Normally, the price/earnings (P/E) ratio of midcaps should be lower than that of largecaps but a study found the opposite to be true. A sample of 300 midcaps was found to have a P/E of 37.3 while the top 100 largecaps had a P/E of 19.4. This gap in valuations is the largest in the last few years. 
This tells us two things about midcap stocks. First, the earnings (E) are under a lot of pressure. Over the last few years, very few midcaps have managed to come through the economic downturn in fine shape. Sluggish topline growth, high interest costs, low capacity utillisation and poor pricing power resulted in a lot of stress on profits. This situation has not changed too much. 
Second, the price (P) still remains high, despite the recent correction. This is because the markets are factoring in a sharp economic recovery. Many so called 'experts' believe that the worst affected mid and small caps will provide the best returns when the economy booms. Needless to say, we do not subscribe to this view. 
We believe the best way you can make use of this correction, is to buy high quality stocks across market capitalization, ensuring that that they are available at reasonable valuations.Companies with strong moats, riding the Megatrends driving the economy, will create huge wealth in this decade and beyond. As the economic recovery kicks in, it will be these firms that will benefit the most. The rest of them will be unable to deliver the earnings growth needed to justify their lofty valuations. 
So do not blindly overpay for growth or be in a haste to invest in this correction. Instead, follow the timeless advice of keeping your focus on the fundamentals and a hawk-eye on the valuations.
Coming to the commodity markets bullions , base metals and energy will remain volatile and swing in both zones

www.astroeyes.blogspot.in


Yesterday's calls sent

Double bumper Sesa sterlite - buy at cmp 3.75 sl 2 targets 9 - went 11.75
Jackpot Drl - sell at cmp 3310 sl 3345 targets 3200 - went 3142
Advance Nifty - booked profits at 8135 - short from 8427
Bank nifty - sell at cmp 18390 sl 18500 targets 18000 - went 17863
Gold Mcx – sell at cmp 27335 sl 27385 targets 27200 - booked profits at 27237
Silver Mcx – sell at cmp 37880 sl 38050 targets 37000 - booked profits at 37111 
Double Bumper Reliance capital 500 pa - buy at cmp 13.50 sl p targets 25 - went 32.80
Hexaware - buy at cmp 201.50 sl 200 targets 206 - went 207.20
Tech mahindra - buy at cmp 2510 sl 2490 targets 2550 - went 2567
Karnataka bank 140 pa - buy at cmp 3.50 sl 2.75 targets 6 - went 7
Lic - buy at cmp 410 sl 405 targets 425 -  hit sl
Sbi - buy at cmp 305 sl 302 targets 312 - hit sl
Dlf - buy at cmp 143 sl 141 targets 150 - hit sl
Axis bank - buy at cmp 483 sl 480 targets 492 - hit sl