Table of Contents      1.    Snapshot of the previous issues on market outlook      2.    A lot can happen over 3 months  ...
Call anytime, we are available 24x7For health check of your portfolio, please e-mail your portfolio  to Info@hbjcapital.co...
Snapshot of the previous issues on market outlookNov’10 Issue –           We issued a CAUTION NOTE / RED ALERTS (to all ou...
A lot can happen over 3 monthsFinally our conviction has come true - If Indian markets were to be stopped, the show stoppe...
Is this a pre-budget rally in the markets?After witnessing volatile sessions during first two weeks of Feb’11, the Indian ...
Most likely market move in very short term?                   On Friday, Feb 18th 2011, we saw an upward move in the      ...
What is ‘Smart money’, who are ‘Market-makers’?                                               •     There are all sorts of...
How we recognized the end of a rally in Nov’10?                            Four major signs of selling (supply) to worry a...
Expected market move for next 4 months: Down
Expect bottom around Nifty 5000 & SENSEX 16KIn Systematic investment plan (SIP), an investor don’t need to put a lot of am...
Top 10 stocks to buy in SIP Way from Mar-June’11  Only for existing members of HBJ Capital….  Look for the second half of ...
Lifetime Opportunity for HNI/NRI ClientsDear HNI/NRI Members,We are glad to inform you that we have an opportunity in hand...
Next market peak expected during Jan-Mar’13                                                                               ...
Economic Cycle, Market Cycle, and Business Cycle.                                    Economic Cycle is about the swings   ...
Sectors performing well during diff phases of EC                                    The following charts shows            ...
Expect fall in DOW ahead of QE2 ending in June’11.•   The Fed continues its plan to inflate the equity markets as part of ...
U.S. market qualifies as a bubble ready to burst                                                                          ...
Historically, global markets do tend to move in tandem.The U.S. stock markets continuing strength in the face of so many g...
Pricing the market [Price/Earning Ratio]                                                                                  ...
Pricing the market (Contd.)Looking at the chart in last slide, one may think that one has to move out of stocks completely...
Pricing the market (Contd.)AT WHAT LEVEL’s SHOULD ONE START BUYING?We will be trying to value the market and based on that...
Technical Views : Budget Rally may be short lived•   The equity markets are considered to be the leading indicator ahead o...
Pain is not over on a medium term perspective•   The vicious cycle of macro factors helped to set a perfect stage for the ...
Money Making MantrasOver the last 3 months the markets have witnessed a major correction causing many large cap stocks to ...
Money Making Mantras (Contd.)A large part of the blame for investor’s being caught at the wrong side of the market goes to...
Money Making Mantras (Contd.) Invest only that money in market which you may not require for probably another 2 years or ...
Money Making Mantras (Contd.)    Follow the Performance of the company rather than the stock price - The stock prices and...
Your Team
Visit : www.hbjcapital.in   HBJ Capital™ Services Pvt. Ltd.         #912, 1st ‘F’ Main, Girinagar II Phase,              B...
DisclaimerThis document is not for public distribution and has been    furnished to you solely for your information and mu...
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
The Sixth Sense in the stock market - Spot the next big trends - Feb 2011
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The Sixth Sense in the stock market - Spot the next big trends - Feb 2011

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During the month of Feb 2011, we released the market outlook for Nifty with target of 4800 in next 6 months

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The Sixth Sense in the stock market - Spot the next big trends - Feb 2011

  1. 1. Table of Contents 1. Snapshot of the previous issues on market outlook 2. A lot can happen over 3 months 3. Is this a pre-budget rally in the markets? 4. Most likely market move in very short term? 5. What is ‘Smart money’, who are ‘Market-makers’? 6. How we recognized the end of a rally in Nov’10? 7. Expected market move for next 4 months 8. Expect bottom around Nifty 5000 & SENSEX 16K 9. Top 10 stocks to buy in SIP Way from Mar-June’11 10. Lifetime Opportunity for HNI/NRI Clients 11. Next market peak expected during Jan-Mar’13 12. Economic Cycle, Market Cycle, and Business Cycle 13. Sectors performing well during diff phases of EC 14. Expect fall in DOW ahead of QE2 ending in June’11 15. U.S. market qualifies as a bubble ready to burst 16. Historically, global markets do tend to move in tandem 17. Pricing the market [Price/Earning Ratio] 18. Technical Views : Budget Rally may be short lived 19. Pain is not over on a medium term perspective 20. Money Making Mantras
  2. 2. Call anytime, we are available 24x7For health check of your portfolio, please e-mail your portfolio to Info@hbjcapital.com or Speak to our research analyst.
  3. 3. Snapshot of the previous issues on market outlookNov’10 Issue – We issued a CAUTION NOTE / RED ALERTS (to all our members) anticipating correction of 20-25% (from peak) in the Indian markets during next 6 month period. It was strongly recommended to keep 40- 50% cash in hand.Till today, we have already seen correction of 15-17% during last 3 months.Dec’10 Issue – It was communicated that bounce back in Dec’10 will be an opportunity to raise cash levels & one should avoid any fresh buying, we also anticipated the fall in Jan’11 onward. We re-iterated our stand on holding 40-50% cash in hand in order to take advantage of ongoing correction. So far market moves were in line with our views & we are expecting that our members are in good cash positions. Time has come to start looking for best investment opportunities/stocks available @ huge discount during next 4-6 months time frame.
  4. 4. A lot can happen over 3 monthsFinally our conviction has come true - If Indian markets were to be stopped, the show stopper has to be fromwith in. And now, there are show stoppers everywhere around. While most of the downtrend can be directly orindirectly attributed to the reasons with in India, the attractiveness towards developed markets has also been a key reason.But then, even this attraction comes from the unattractiveness of high inflation, high interest rates, lower geo politicalstability in the emerging markets or developing nations. As we all know, trend comes first followed by news, in thecurrent scenarios market started falling from Nov’10 onwards followed by lots of bad news….
  5. 5. Is this a pre-budget rally in the markets?After witnessing volatile sessions during first two weeks of Feb’11, the Indian markets have bounced back on short covering,optimism in the global markets and speculations that pre-budget sentiment may boost trade. This was actually a corrective rally asmany stocks were still trading below their short term averages. The current market rally was more of a bounce back as upcomingevents like budget and RBI announcements were creating a positive sentiment. Budget is not going to make any difference at all inthe market movement. We should not be ever under the illusion that there will be a pre-budget or a post budget rally.Expect range bound move till budget…In the event that we see a rally from now onwards till the budget and if the budget disappoints, then there is a possibility of it coming back again. Apart from the domestic headwinds that we have been seeing, there are other geopolitical issues coming in from the Middle East and African countries which can also have a bearing in the short-term. We would still be in a wait and watch mode. There is a possibility that the market can once again comes back, but whether 5,200 or 5,300 remains to be seen. The possibility of the market breaking into a fresh rally is limited right now as the budget exercise is going to be a big challenge for the government. The question is how does the government tackle the huge deficit situation and what is going to be the stance between inflation and growth? It is not going to be an easy exercise and some of the hopes of corporate India might get belied.We are not very optimistic of the market taking a fresh rally post the budget but it is almost a consensus trade right now that this pull back is just a pullback and won’t sustain and is likely to see it coming back. The market almost always surprises and behaves against the consensus. On the macro factors, the factors which took the market down, we are going to see some improvement, whether it is inflation, IIP or the fiscal deficit which can be addressed by the government in the budget. If we see some improvement incrementally on the macro issues and even corporate earnings downgrades have not been to the extent that was initially feared, We feel the market can perhaps take support or bottom out maybe at higher levels than what the market has been fearing.
  6. 6. Most likely market move in very short term? On Friday, Feb 18th 2011, we saw an upward move in the market followed by sharp decline. It was a high volume trade with high spread….What would be the probable move in the next few days! Market-makers (Fat boys/Smart Money) are quite capable of generating an up-thrust, which is a moneymaking maneuver. The traders who are already selling (shorting) the market, become alarmed and cover their positions when markets are artificially pushed upward. It is a common strategy to suddenly mark-up prices to catch the unwary. This action is seen after signs of weakness and frequently indicates the start of a falling market. The higher price (Nifty 5599) is maintained for as long as possible. The price then falls back, closing on the lows (Nifty 5458). As the early price is marked up (jacked up), premature short traders are liable to panic and cover with buy orders. However, those traders looking for breakouts will buy, but their stop-loss orders are usually triggered as the price plummets back down. All those traders who are not in the market may feel they are missing out and will feel pressured to start buying. Hence, the downward move seen on last Friday was an indication for weakness in the market which will continue for few more days.
  7. 7. What is ‘Smart money’, who are ‘Market-makers’? • There are all sorts of professional interests in the worlds financial markets: brokers, dealers, banks, trading syndicates, market-makers, and traders with personal interests. All the trading movements from around the world are funneled down to a limited number of major players known as market- makers or specialist (collectively known as the ‘smart money’ or ‘professional money’). These traders, by law, have to create a market. They are able to see all the sell orders as they arrive, and they can also see all the buy orders as they come in. These traders have the significant advantage of being able to see all the stop-loss orders on their screens. They are also aware of ‘inside information’, which they use to trade their own accounts! Despite ‘insider dealing’ being illegal, privileged information is used all the time indirect to make huge sums of money. The dark secret of the stock market - Identify and Follow The Smart Money• To put it simply, a professional trader can see the balance of supply and demand far better than anyone else can. However, you do need to recognize that professional traders can do a number of things to better their trading positions: Gapping up or gapping down, shake-outs, testing, and up-thrusts are all money making maneuvers helping the market- makers (liquidity provider) to trade successfully, at your expense – it matters not to them, as they do not even know you.• You hear little of these activities, because these traders shun publicity. The last thing they want is for you or anybody else to know that a stock is under accumulation or distribution.They have to keep their activities as secret as possible. They have been known to go to the extremes, producing false rumors (which is far more common than you would perhaps believe), as well as actively selling the stock in the open, but secretly buying it all back, and more, via other routes.• Top professional traders understand how to read the interrelationship between volume and price action. They also understand human psychology. They know most traders are controlled in varying degrees by the TWO FEARS: The fear of missing out and the fear of losses.
  8. 8. How we recognized the end of a rally in Nov’10? Four major signs of selling (supply) to worry about. These signs of supply will slow a bullish move, or even stop it – they are: 1. The buying climax - Very wide spread up to close well off the highs on ultra-high volume. This is after a substantial bull market has already taken place. If you are in new high ground, this is a certain top. 2. Narrow spreads accompanied by high volume, on an up-day, into new high ground -This is very simple to see. The public and others have rushed into the market, buying before they miss further price rises. The professional money has taken the opportunity to sell to them. This action will be reflected on your chart as a narrow spread with high volume on an up-day. If the bar closes on the high, this is an even weaker signal. 3. The up-thrust - Up-thrusts can be recognized as a wide spread up during the day (or during any timeframe), accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market, where the market has now become overbought and there is weakness in the background. Market-makers are quite capable of generating an up-thrust, which is a moneymaking maneuver. 4. Sudden high volume on an up-day, with the next day down, on a wide spread, closing below the low of the previous bar.Ultra-high volume + Narrow spread + Upward move in the market during Nov’10 was a clear sign for trend reversal.
  9. 9. Expected market move for next 4 months: Down
  10. 10. Expect bottom around Nifty 5000 & SENSEX 16KIn Systematic investment plan (SIP), an investor don’t need to put a lot of amount at one time but require small amounts on a monthly basis. We advice all our members to start investing from March to June 2011 in systemic manner every month.Restrictive Monetary Policy Leads to Declining Stock MarketsHistory shows that most bull markets die when central banks shift to a restrictive policy.Yet rising food prices are of greater concern than declining stock prices for emerging economies’ politicians. Therefore, we expect even more interest rate hikes to come, no matter how the stock markets react. So instead of propping up stock prices like Ben Bernanke’s Federal Reserve has done, emerging market central banks have made controlling inflation a top priority.Opportunity in the Making in the emerging economy…..At the end of 2008 emerging economies’ stock markets showed relative strength compared to the U.S. and Europe. They didn’t fall to new lows in March 2009. This relative strength was the harbinger for the huge rally that was to come. Now they exhibit relative weakness and are not joining the U.S. and Europe in making new cyclical highs. And today’s relative weakness may very well turn out to be a harbinger of the next cyclical bear market in the offing which is nothing but the opportunity in making. The stock indices of Hong Kong, India, and Brazil have just hit key support levels. Consequently, a short-term rally may pop up. If so, you should consider it an opportunity to profit from the continuation of what looks like the early part of a cyclical bear market.
  11. 11. Top 10 stocks to buy in SIP Way from Mar-June’11 Only for existing members of HBJ Capital…. Look for the second half of 2011 for recovery
  12. 12. Lifetime Opportunity for HNI/NRI ClientsDear HNI/NRI Members,We are glad to inform you that we have an opportunity in hand for you. HBJ Capital on its journey towards becoming India #1 Equity Research & Investment Company, has launching one of the most innovative initiative especially designed for High Net worth Individuals. Just to brief you, the initiative called – HBJ CAPITAL VENTURES LLP is a partnership firm with limited liability based on the similar structure followed by ace investors –Warren Buffett. HBJ Capital Services Pvt. Ltd will be one of the designated partners of this firm along with other partners who will bring in funds for the purpose of investment.By Feb’11 end, we are going to close our first round of fund, an asset under mgmt INR 5 CR (minimum investment amount of Rs50 Lacs from each partner). This is one of the highest priority ventures for us & also a growth engine of HBJ Capital, hence the success of LLP is not only our motive but it is our religion. We would like to thank all the partners who has contributed & became an integral part of LLP. If you are interested and willing to know more about this fund. Please drop an email to Info@hbjcapital.comRegards, Kumar Harendra, CEO, HBJ Capital
  13. 13. Next market peak expected during Jan-Mar’13 The Economic Confidence Model in 2.15-year intervals 1998.55...07/20/98 2000.7.... 09/13/00 2002.85…11/08/02 2005.... …01/02/05 2007.15... 02/27/07 2009.3... ..04/23/09 2011.45... 06/18/11 2013.6... ..08/12/13 2015.75... 10/07/15Economic Confidence Model shows maximum extent of weakness in real 2017.9... ..12/01/17 economy by mid June 2011. Usually Markets moves 3 to 9 months ahead of 2020.05... .01/26/20 real economy hence as we predicted earlier in Nov & Dec’10 reports, one can 2022.2... ..03/22/22 see bearish period in the market from Jan to June 2011. 2024.35... .05/16/24Just to brief you on Martin Armstrong who discovered ECM…. 2026.5... ...07/11/26Armstrong is most known for being the developer of the Economic Pi Cycle, also known as 2028.65... ..09/04/28 Economic Confidence Cycle, that aims to predict major turning points in the 2030.8... …10/30/30 market. He may be one of the most interesting and out-of-the-box thinkers on the 2032.95... ..12/24/32 markets. He supposedly predicted the 1987 crash, the Japanese crash and the top of our real estate market to the day.
  14. 14. Economic Cycle, Market Cycle, and Business Cycle. Economic Cycle is about the swings from general periods of expansion to periods of economic contraction as you can see in the graph (the outer band). The Market Cycle is about how the various markets move in relation to the Economic Cycle. And the Business Cycle is the politico/economic fluctuation of the markets within the Market Cycle, also called the Presidential Cycle (the words in blue: Stocks Up/Down, Commodities Up/Down, Bonds Up/Down). The Economic Cycle is the juggernaut of the economy - the mother of all trends.
  15. 15. Sectors performing well during diff phases of EC The following charts shows this on a time line where the Market Cycle ("Stock Market Cycle") leads the Economic Cycle. Different sectors are stronger at different points in the economic cycle. The chart shows these relationships and the order in which the various sectors should get a boost from the economy. The Market Cycle precedes the Economic Cycle because investors try to anticipate economic effects. So, if you know where the Economic Cycle is, then you know where you want to be looking for opportunities in the markets or what to expect in the market youre trading.
  16. 16. Expect fall in DOW ahead of QE2 ending in June’11.• The Fed continues its plan to inflate the equity markets as part of QE2, and it has said that outright several times, so manipulation is now a Fed tool and that puts the US on par with the Zimbabwe market. You don`t want to be standing when the musical chairs game stops the music.• Markets go from fear to greed and economists/politicians are always debating and predicting Deflation or Inflation. Bernanke was significantly worried about Deflation 6-8 weeks ago and now that agricultural commodities have continued to rise the politicians are all over him about inflation.• The bottom line is that QE 2 has failed to stop interest from rising, because he can`t fool the bond market with his jaw boning and Treasury Bond buybacks, but it has inflated the equity markets, but now he is getting heat to end the game in June which is the QE 2 end date unless extended. Mid-June happens to be a very significant long term Pi date so it is a key time period in the business cycle and very often for the market[s].
  17. 17. U.S. market qualifies as a bubble ready to burst Year-to-date the S&P 500 is up 5.6 percent. It’s up 13.2 percent since late November and 26.7 percent since late August, when Fed chairman Bernanke first announced QE2. According to Bernanke himself, this huge rally is the result of his quantitative easing efforts. He is probably right, since there are very few other reasons to support a stock market rally.Why do we think that US market is vulnerable? For the third time in a1) The fundamental valuation is extremely unattractive. The PE-ratio based on 12-months trailing dozen years the U.S. stock earnings is at 18.5. And the dividend yield is down to a paltry 1.71%. Both are classic valuation market qualifies as a metrics. And both are telling us that stocks are poised to deliver dismal long-term results. bubble ready to burst. And2) Sentiment indicators are telling us that bullish expectations have reached extremes. According to the emerging markets’ relative Investment Company Institute, mutual fund cash levels are down to 3.5 percent. They got that low weakness can be only once, in early 2010, shortly before the flash crash of May 6th, which started a 20 percent interpreted as a warning correction and got Ben Bernanke to announce QE2. sign that the party may be3) The stock market is extremely overbought. Momentum indicators of nearly all time frames are over soon. Look at the stretched to the point where a bigger correction has to be expected. chart between smart &4) Longer-term interest rates have risen considerably since mid-2010. Rising interest rates and a stock dumb money which market rally at the same time has historically been a rare coincidence. And when it did occur, usually clearly shows that smart it wasn’t long until stocks caved in to the pressure of rising rates. This is especially true when stock guys are not betting on market valuations were high, markets were overbought, and irrational exuberance reigned — as is the up move. currently the case.
  18. 18. Historically, global markets do tend to move in tandem.The U.S. stock markets continuing strength in the face of so many global problems is truly remarkable - and has been correct so far.Meanwhile, the markets of China, India, and Brazil are down an average of 15% since their peaks in November, and are mostly making newlows almost daily.Historically, global markets do tend to move in tandem. So it is unusual.Is it that investors in the U.S. market know something other countries dont know, perhaps that the worries of other countries, including rising inflation fears, the European debt crisis, the revolutionary changes underway in Egypt, the aggressive monetary tightening moves by China to slow its economy, and by emerging markets to ward off inflation, are not going to be real problems?Or that the problems worrying other markets may affect those countries but will not affect the U.S.?Or is it confidence that even if there are problems Fed Chairman Bernanke has the power to hold the stock market up, and will do so?So far, the U.S. market has been correct that the problems are not affecting the U.S. Fed Chairman Bernanke says there are no inflationarypressures on the horizon in the U.S. And economic reports, excepting those related to employment and the housing industry, continue toimprove. Consumer and investor confidence continue to rise. In fact, investor sentiment in the U.S. is at unusually high levels of bullishnessand confidence.Investor sentiment, always very bullish at market tops, and very bearish at market lows, was at extremely bearish levels at the low in early2009, convinced the market could only go lower. It is now at extreme levels of bullishness and confidence, convinced the market can only gohigher. And by most measurements it is at levels at least as high and even higher, than at previous significant market tops, including that ofOctober, 2007.Since it has had no normal pullbacks or corrections to work off excesses, the major U.S. market indexes, like the Dow, S&P 500, andNasdaq, are very overbought above their 200-day moving averages, to a degree that almost always result in a decline sufficient to alleviatethe overbought condition, and usually down far enough to retest the technical support at those moving averages. Such a normal pullbackfrom current levels before the bull market resumes would amount to about 12% for the S&P 500. Expect S&P 500 to correct 12% from its current peak between March to June 2011
  19. 19. Pricing the market [Price/Earning Ratio] We have always been believer of the fact that timing the market is impossible; particularly because the numbers of variable factors are beyond one’s imagination and as we move forward the variables will increase. However what I certainly believe is that one can price the market just like one determines the valuations of the stocks before investing. Even while pricing we won’t consider complex valuation methods because at times a simpler approach can be more effective than the most complex analysis.PRICING THE MARKET WITH PE RATIO….Above one can find the PE Ratio chart for SENSEX for the last 15 years. During the same period we have had some major booms and bursts. However, no matter how different the SENSEX level was during each market correction, the noteworthy point is that during each of the preceding correction, the SENSEX valuations were overstretched. Be it Dot com bubble in 2000-01 or Sub Prime Crisis in 2008-09, the SENSEX crossed the PE multiples of 23-24 and thereafter plunged like anything. This was about past, now talking about the recent correction that we are witnessing, we would like to bring your attention to the point marked as Nov’10. During early Nov’10, the SENSEX closed above 20.5K i.e. ~24 times FY 10 earnings. It did touch the level of 21,000 thereafter; but we all know the current levels (Refer “WE ARE HERE” on chart).
  20. 20. Pricing the market (Contd.)Looking at the chart in last slide, one may think that one has to move out of stocks completely as and when SENSEX valuations cross the mark of 22-24 times earnings; however one should not miss out that markets can remain overvalued for extended periods of time. A look back at periods pertaining to “IT BURST” and “SUB PRIME CRISIS” confirms the same. If you book out of markets completely, you may miss out on some of the most lucrative gains.SO WHAT SHOULD BE DONE IN SUCH A SCENARIO?In the Scenario discussed above i.e. when markets are trading in the range of 22-24 times earnings, we would not suggest you to book out completely. We would suggest you to book profits in overvalued counters, start withdrawing out of equity in a systematic manner (Just as you make SIPs, one should also start withdrawing from markets in a systematic manner as and when the valuations become stretched) and build up 50% cash in your respective portfolios. This way you will build up your coffers and make the most of subsequent market corrections which anyways will happen, while also take advantage of irrationality and over-exuberance of markets during extended periods of overvaluation.The above practice requires great deal of discipline and a control on urge against investing in rising markets.Note: In May 2003 Nifty PE Touched 10.84 the then low and Big BOOM followed. Again on 27th Oct 2008 It Touched 10.68, one of the lowest in Decade. The other side of It is, in Feb 2000 and Jan 2008 PE Touched 28, Highest in Decade, and both times Markets Crashed from there.
  21. 21. Pricing the market (Contd.)AT WHAT LEVEL’s SHOULD ONE START BUYING?We will be trying to value the market and based on that, we will be suggesting a strategy of portfolio build up. Before we do that, let’s discuss the earnings of SENSEX. As per the data provided by BSE INDIA, the earnings for SENSEX for FY 10 stood at 830. The data of earnings for the trailing twelve months (TTM) i.e. 4 quarters ending Sep’10 is not available, however on checking the below picture, we can infer that the EPS must be close to 920, while we are expected to close FY 11 with an EPS of 1000-1010 (The brokerage houses and analysts have been suggesting higher figures but we will be conservative with our estimates).As we are nearing the end of FY 11, it will be safe to say that markets are currently trading at 18 times FY 11 earnings, while going forward the direction of SENSEX will also be guided by how FY 12 earnings shape up.Talking about FY 12, we will be again very conservative in our estimates at an expected EPS of 1150 assuming a 15% growth in earnings (UBS SECURITIES had predicted SENSEX earnings at 1345 for FY 12 and similarly other brokerage houses are suggesting in the range of 1200-1300). As per the long term trend, the markets on an average trade at a multiple of 16 on 1 year forward earnings. So, we are at just about those levels (1150*16 = 18,400) but with Global and Indian macro economic scenario not being very favorable, we expect the market to trade with a downward bias in the range of 13-15 times earnings i.e. 15,000-17,250.Considering the above range in perspective, we would suggest everyone to start investing in SIP manner in some of the best recommendations suggested by us at around SENSEX level of 16,800-17,000 and increase the allocation towards equity as we move southward. The above strategy is being suggested in the wake of the fact that bottom of the market can never be predicted and thus it’s always better to go SIP way when one finds valuations apt.
  22. 22. Technical Views : Budget Rally may be short lived• The equity markets are considered to be the leading indicator ahead of the domestic as well as world economy. The Indian bourses succumbed to the complex macroeconomic factors popping over the domestic horizon at regular interval. On the other hand, the world economic diaspora performed relatively better than expected, providing a conducive environment to attempt for all-time high on the charts.
  23. 23. Pain is not over on a medium term perspective• The vicious cycle of macro factors helped to set a perfect stage for the recent sell off in the benchmarks. The high inflationary situation driven by the demand- supply mismatch especially in the case of food articles enhanced the necessity of a monetary tightening. The Reserve Bank of India (RBI) which is considered to be the most pre-emptive central bank, preferred to soak unproductive liquidity out of the monetary system by rate tightening. The delicate balance between growth and inflation has never been so difficult to manage by the central bank, taking into account the origin & essence of the underlying cause.• The market factored in each of the above mentioned factor on the ticker boards leading to sharp selloff across the board. The role of the Union Budget would be ironical for defining the next course of action on an intermediate term time frame. The leveraged books due to extensive borrowing would be making it difficult for the centre to meet the target in terms of fiscal deficit, a key measure of the country’s economic health.• The current market seems to be driven by momentum with volatility as its intrinsic characteristic on either side of the trade. A void due to the lack of retail participation indicates that it would still be premature to assume that the pain is over on a medium term perspective.• The technical picture on the charts suggests that the Long term moving average (200-EMA) & Medium term moving average (50- EMA) is trading at 5645&5700 mark respectively, which would prove to be levels of excess supply in the intermediate time frame. In case of a negative crossover, which looks eminent on the charts, significant downslide could be expected leading to a medium term downtrend.• As evident on the chart, S&P Nifty is trading in a broad range of 5685-5235 driven by momentum on either side of the trade. In case of a positive breakout, the higher zone marked by 6215-5765 levels would the capped upside on an intermediate time frame.• However penetration of the previous lows at the 5185 mark would stimulate trading in the lower zone defined by 5150-4755 levels. The trading markets are susceptible to volatile swings as indicated by the India VIX index trading consistently above the 20 mark which would transform markets into a trending “buy on dips” or “sell on rise” bet.• A cautious approach is the demand of the present circumstances & a “Top Down” approach aided by selective buying would be best suitable to generate stupendous returns even with lesser risk appetite.
  24. 24. Money Making MantrasOver the last 3 months the markets have witnessed a major correction causing many large cap stocks to be now termed as mid cap stocks while many mid cap stocks to be now termed as small cap stocks. Basically the magnitude of the correction was such that many stocks have corrected by 50%. However, the correction was due as the Indian Markets were richly valued in comparison to other Emerging economies (At a level of 21,000 we were trading at 23-24 times FY 10 earnings , while at current level of 18,000 we are trading at PE ratio of 19.58) but the manner in which it has happened has unnerved many capital market participants.Well that’s how the market functions, and as Warren Buffett says, The Markets go up the stairs and down the elevator. The Markets are also known to be brutally volatile, causing complete wipe-off many undisciplined Value Investors (Read: Value Pretenders) and traders who during market correction start cursing stock market for their losses, terming it gambling, etc and start believing it to be the end of their journey in the markets.It’s really a matter of great pity that even though equities can and have turned out to be the best asset class in the history of mankind, but they have been constantly suffering the malaise of being termed as gambling. Those who have not understood equities and investing in equities condemn them as gambling and write-off any contribution that they could play in the country’s development.What is even more worrisome is that although equities as an asset class have been the outperformers, but the retail investors in India have never been party to the same. Sadly, a dominant part of the prosperity and wealth creation, fuelled by a booming Indian economy and reflected by equities, is being enjoyed only by large foreign investors or a handful of high net worth individuals (HNIs).
  25. 25. Money Making Mantras (Contd.)A large part of the blame for investor’s being caught at the wrong side of the market goes to investors themselves. The real astonishing fact about the people (Read: Retail Investors) who invest in stocks is that they buy stocks during momentum i.e. when stock prices are going up, when they people talking about stocks at every nook and corner rather than investing when stock prices have corrected. Ask yourself, is this what you do when you set out to buy groceries or electronic items because in that case you look for bargains while when you buy stocks you look for companies where the prices are rising). Secondly, why do you start counting losses in just 1-2 months when in first place you had decided to remain invested in stocks for 2-3 years or more?Well, here we would like to mention that in stock market one can never ever lose money and if one loses money it is all because of his greed, short term perspective, short cut approach to money making, lack of patience and lack of understanding of the system in which they take a plunge. A fact for the matter is that 98 out of 100 people lose money keeping a short term perspective on the market and probably many of you reading this must be on the side of majority. So, its up to you to decide if you wish to be on the side of those 98 people who lose money every day or you wish to be on the side of the minority who end up creating huge wealth for themselves.Now that we have been speaking that you cannot lose money, we would like to share the few mantras of success in markets. These are not something you may not be aware of. Rather everyone can make money because after all you need not be a genius to crack the code of market (Read: Einstein lost money because even he succumbed to momentum buying instead to following value buying). So, here it goes……………..
  26. 26. Money Making Mantras (Contd.) Invest only that money in market which you may not require for probably another 2 years or more – This is the first and foremost rule of investment in equities. Many people in a lure to make quick returns invest the amount kept aside for some emergency purpose and then they find themselves trapped in a market correction and fall short of amount which makes them sell stocks at depressed prices. This way you fall in a trap laid by market volatility. Dont look at markets as secondary source of income. Look at it from a point of view of investing your savings and earning better returns in comparison to any other asset class - Let’s understand how and why it is important. The Indian economy, as most of us agree, is likely to grow by 8.5-9% in real terms, which is 13-14% in nominal term. As has been the pattern over the past three decades, agriculture will grow at a slower pace of 2.5-3% p.a. (as land is the limiting factor) and the industrial and services sectors grow at a faster pace of 10-11% p.a. in real terms of over 15% in nominal terms. This reflects in the corporate earnings that have average growth of 18% per annum. At that rate, equity investments double in about four years time, whereas bank deposits earnings at around 6-7% per annum will take almost 12 years to double. In these 12 years, investments in equities would have grown 8-fold. Also, returns on equities by way of dividend and capital gains are either tax-free or attract lower tax rate compared with interest income. Look at stocks as businesses and look for bargains - Its amazing as to how People buy stocks based on the tips and dont carry out due diligence. They buy those stocks where they see the prices going up and shun those stocks as bad where they see the prices going down. Ask yourself if you look for the bargains or not while buying any other item, then why not in the case of stocks.
  27. 27. Money Making Mantras (Contd.) Follow the Performance of the company rather than the stock price - The stock prices and their movements are basically the derivatives of the underlying business of the company. So if a company does well, the stock price treads the same path (there could be minor aberrations mid-way) while if the company performs badly, the prices plummet, however Mr. Market is not always correct while determining the stock price of a company. Sometimes it can quote a high price while at times a lower price than the intrinsic value.You need to understand the same and take advantage. So instead of grimacing about the stocks not moving, one should take an advantage and accumulate. Sooner or later the stocks will move up supported by the conducive market sentiments Buy good stocks (businesses) at good valuations with great future prospects - This is one of the most fundamental rules for being successful. A combination of the three is very important because you may buy good stocks (companies like Reliance, Infosys, etc) but it wont serve the purpose of successful investment because these companies are mostly appropriately or overvalued. Similarly, you may buy an undervalued stock but it may continue to remain undervalued (unless it’s a case of pure liquidation) for extended periods of time if the prospects aren’t good. So, a combination of three is must for any investment in equities. Last but not the least; dont pay too much attention to the close-in view, because it doesnt represent the true picture. Fortunes are made by backing up and investing over longer time frames.In the shorter time frame there will always be some minor corrections while some major corrections but if you are ready to remain invested in good companies bought at good valuations, mark our words, you are already a winner in the stock market because if a small saver can multiply thousand rupees eight times vis-a-vis two times, we can imagine the kind of difference it can make to his post-retirement life, standard of living and also to that of his future generations. It is a pity, that today only 4% of the savings of Indian households get invested in equities. We however hope that people realize the potential of equities over a period of time and also benefit from the same.
  28. 28. Your Team
  29. 29. Visit : www.hbjcapital.in HBJ Capital™ Services Pvt. Ltd. #912, 1st ‘F’ Main, Girinagar II Phase, BSK 3rd Stage, Bangalore - 85 Contact: +91 80 65681133/34, Mob : +91 98867 36791 Bangalore |Chennai |New Delhi |Hyderabad
  30. 30. DisclaimerThis document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient only.The recommendation made herein does not constitute an offer to sell or solicitation to buy any of the securities mentioned. No representation can be made that recommendation contained herein will be profitable or that they will not result in loss. Information obtained is deemed to be reliable but do not guarantee its accuracy and completeness. Readers using the information contained herein are solely responsible for their action.HBJ Capital, or its representative will not be liable for the recipient’s investment decision based on this report. HBJ Capital, officers, directors, employees or its affiliates may or may not hold positions in the companies /stocks mentioned herein.

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