A Diwali of Hope!

Dear investors,

A very happy and prosperous Diwali to you and to your family!

With this Diwali, Imperial Regalia opens its eyes to the fifth month of its subsistence.

The stock market is hovering around 26,720 as I write this newsletter, jumping 25% from the figure of 21,321 as in last Diwali.

Apart from historical political changes like single government gaining majority after 25 years, a lot has changed; but, what has been the biggest change is intangible yet quite visible - the attitude of India as a nation.  

From a country, which was floundering in scams since the past 60 years; we now stand united against the soft yet greatly perceivable virtues of cleanliness and safety. The nationwide campaign of ‘Swachh Bharat Abhiyan’ and a very altruistic step of allocating 10,000-crore rupees towards the crash victims and improving ambulance system to ensure safety and care on roads for general public are the examples of changing India.

I always envy Warren Buffet when he proudly states, that he won the lottery of birth by being born in America which makes him among ‘lucky 1% of the entire population’. But the scenario can be different now. Despite all the gloomy news from around the world (except America, of course!), India as an emerging economy has shown a great resilience. The reason for this come-back and positivity for the future is our young population. We as a developing economy are strongly driven by internal consumption; if directed proportionately we can and must lead to a robust manufacturing-based economy. I believe that, if necessary steps are executed, we shall witness the results in 2-3 years.

Upbeat earnings are expected in the month of October as results open-up. Thus, hope of better economic performance gains strength. Yet ‘Caution’ remains the world of the day and as the past has taught us again and again, we need to stick to our risk profile and asset allocation for time in now.

I shall assert that every investment must be treated as a business with a sole, undeniable and indisputable aim of maximizing the profits. Hence, it becomes a matter of utmost necessity that one should be aware of the past as well as the factors that can affect the future course of investments.

Treading cautiously on the road of sectoral recommendations, I would emphasize on the following sectors:

1.      Economic cycle- Banking & Finance

2.      Consumption-based- Automobile & Engineering

3.      Infrastructure-based- Transport & Logistics

4.      Export-oriented- IT & Healthcare

Since last Diwali, investors invested in any of the above sector have witnessed a dramatic turnaround, earning anything between 40%-135%. I believe, we shall see a prolonged bullish momentum take force as and when the policy changes come true.

Wishing you again, a happy, joyous and prosperous Diwali!

Pallav Saraswat

Too big to fall, yet struggling to recover!

Today, we travel six years from a Monday on which ‘Wall Street Plunged into chaos’ to a Monday where ‘World waits for white smoke from US Federal Reserve’.Yes! It was the September 15, 2008- Too big to fall, did fall! And today, too big the economies, struggle to recover!

Needless to say, the journey of these 6 years have not been easy, the year of 2009 witnessed European sovereign debt crisis- PIGGS emerged; in the Year of Snake, 2013, emerging markets went into currency crisis-Fragile Five surfaced. (Source: Economic Times, 2013)

As we stand today, US economic growth still remains below its 2005-07 levels, Euro-zone continues to battle to attain its pre-crisis economic output levels, Japan remains at risk of recession, China’s economic growth remain flat and India still struggles to reach its GDP at 2005-07 levels. On a whole, world economy has failed to recover and continue to witness stagnation with a growing threat of another financial crisis. (Source: Global Research.ca, 2014)

During all these years, market fell to as low as 8000pts from the highs of 21000pts; hovered around 15000-16000 levels, there were states of hopes, despair and fear; but as we stand today, market is varying around 26000-27000pts. Were we ready to wait for it or did our fears hit us harder? There was nothing wrong with been cautious. But, lot of us did lost hope; thinking that something is better than nothing we accepted and lived with those deep losses in our pockets. But, no one thought market would touch 27000pts, even when advisors demanded faith, hope and patience.

Today, even though economies struggle to recover, stock market has touched all-time highs during the years. With all the ups and downs, today, September 15, 2014 S&P BSE Sensex stand at 26,816.56pts from 13,531.27pts as on September 15, 2008 earning an annualized return of 12.07%. Sensex garnered an annualized return of 24.04% from its lowest in March 2009; on the other hand, 10-yearG-sec has yielded 0.61% since the date of crisis. (Source: BSE, NSE, Bloomberg 2014)

The question is on which side of the curve you were in? Did you beat inflation or got beaten by it? The answer lies in our behavior to ‘sell in fear and buy in greed’. Yes! We are fearful and greedy beings; we fear losses, yet remain greedy for profits, but as they say ‘there’s no free lunch.’ Returns demand risk, what makes the difference, is for how long?

Anyone who would have invested Rs.100 in S&P BSE Sensex 30 on January 8, 2008, and pulled out on September 15, 2008 would have got back ~Rs.65; similarly, withdrawn on March 9, 2009, actual money would have be just ~Rs.40. However, if kept it invested for 6 years, it would have been ~Rs.129. Total wealth would have grown by 29% rather than depleting by 35% and 60% respectively on absolute basis (Source: BSE, 2014).

We as investors, tend follow market movements rather than following market discipline. As statistics state, aggressive market sell-off was witnessed during Sept-Oct 2008 at 8000-13000 levels, whereas, aggressive market purchases were witnessed during Jan 2013/May 2013 and Apr-May 2014 at 19000-23000 levels; clearly indicating that we prefer to buy at higher index levels than lower levels. (Source: Moneycontrol.com, 2014). Did you invest after a rally or disinvest after a correction? Did you fall in herding trap? Did you believe, ‘This time it’s different?’ (Source: BSE, 2014)

I would just like to know one thing- Why was it difficult to believe that market would 26000-27000 levels, even when it reached 21000pts in January 2008, was it difficult to image after the market dropped around 8000pts in March 2009. Did you fall in the game of anchoring and adjustment? Yes, you did maybe that’s you never bought the story that market can reach 27000-levels! If you did, you could have invested today, because 6 years is not too long in equities. Today, are you invested for when market attains 100000-mark or is it that fear of losing money or else greed of making more still ruling your investment decisions?

I would just emphasize on the fact that, ‘we need not worry about volatility; but be cautious of the losses.’