The Time to Buy is NOW!

Mayhem, bloodbath, disaster, crash.. such have been the adjectives used to describe the Indian stock market crash in recent weeks. And with the ferocity with which the markets have retreated, many of these strong adjectives may not really be out of place.

So what does the amateur retail investor do at these times? I am sure this is an important question, and to try and answer the same, I felt it worthwhile to restart my weekly postings, after a long break.

When the going was good (translated: it was a one way ride, going up, up and up..!), it did not take any science to suggest the next move. If I had suggested to sell at that time, no one would have listened. And I don't think I would have asked anyone to sell, anyway! In other words, when the market was zooming up, there was no place nor need for me to suggest anything to the retail investors.

It is only at a time like the present one, when suddenly a lot of steam has gone out of the markets, is there again a question mark. What do do next?

Well, I would start with classifying the retail investors, thus:
1. The ones who entered the market reasonably early, and the recent losses in the markets have reduced their profits, but they are still very much in the plus,
2. Those who have STILL not dared to invest, as they hesitated when the prices were going up so fast, and they never got a chance to get it, at reasonable levels, and
3. Those who waited and waited and finally invested in the last couple of months or so, when the market was very high, and are already repenting, because they are sitting on huge paper losses!

While fundamentally, a "what do do now" question has a common answer in all of the three cases above, however, the mental makeup of investors will be very different, depending on which category of the above three, that the investor falls in.

In more cases than fewer, there is going to be a sense of insecurity and / or panic. Are the markets crashing? If I am invested, do I risk a wipe out, of my portfolio?

Why do these thoughts come? They basically come because of the 'noise factor'. The noise factor is the enlightened media, who seem to have a post-event explanation for everything. And who have their own crystal balls, to justify the further future.

When markets were going great guns, closer to Dusshera, they were talking of the sensex approaching 9500 or even 10000 closer to Diwali. And now when its made a U-turn, the same guys have no hesitation to predict a 7500 number for the sensex, very soon.

These pundits and their pronoucements scare the retail investor away.

Well, the game is to shut out the noise! When noise is cacophony and not beautiful rhythm, then its best shut out. Be your own decision maker.

And on what is your decision based? Here are some mantras:
1. How confident are you about the Indian economy in general? They talk about it being India's moment, India's decade, India's tryst with destiny, finally! I couldn't care whether China is ahead of India in the race or not. Even if we are in second place, its still huge business from where we are today, and Indian companies and Indian people will certainly benefit, over the next few years. Your investment in the markets today, needs this fundamental conviction. If you are not convinced about this, then you may be better off, being out of the markets, or playing a very selective short term game!

2. With this conviction in place, the next factor is to ignore the sensex or the broad generalities, and focus on specific stocks. The sensex may go up or down, but what you are concerned about is, the stocks that you own, or want to own. Look for clear value - the innate ability of the stock to deliver good appreciation for you, from where it is today. Invest in those.

3. How do you find value stocks? When the market gets beaten up the way it got beaten up last few trading sessions, there are losses to most stocks - good and bad ones. And some get beaten up more than others. Perhaps on account of some 'news' about the stock. The news may not be critical to the performance, and might have only a marginal impact, but when stocks are at stratospheric heights, any small piece of negative news, can cause a huge shakedown. Look for such stocks. These can be great buys. A few examples that I can think of, are stocks like Ranbaxy (dropped from 510 to 350 in 3 weeks), Geometric Software (dropped from 125 to 85 in 4 weeks) and India Cements (dropped from 115 to 78 in 2-3 weeks). Note the percentage reductions in these. These companies have not become terrible companies, from being great companies earlier. Its just the market sentiment that has punished some adverse news of these companies, very hard. These stocks, according to me, cannot go down much more from this point, and as against that, they present a huge opportunity for growth, from hereon. These, then, are good value picks.

4. The Q2 results of companies, continue to dazzle. Corporations are doing well, and very well. So the recent drop in prices is a genuine correction that had to happen, when the market had gone up one way, for such a long time, before that. Most genuine investors were waiting for this long overdue correction. It gives a moment to catch the breath, it gives a chance for people who have booked profits earlier, to pick up their favourite stock again, at lower levels. The India Inc growth story being real, the results being great, this in fact, is the time to buy stocks. You can never get the exact bottom to buy at, just like you cannot wait for the perfect max high to sell at. I think the present levels are excellent for making fresh purchases, if you have the liquidity. And if you have not booked profits earlier, selling now, can be the perfect mistake that most retail investors do - they enter a market when its very late and prices are high, and they keep holding when the market slides down, and then sell when it has retreated by a long way! Don't make that mistake now.

5. The other breed of investors who has suffered a lot recently is the one who got really greedy. And went and bought shares that were unheard of. And which were being swayed big time, by speculators and insider trading. The greed of making multi-bags, on these kind of stocks, might have left many an investor holding duds in their hands. If you are one of those, you don't have my sympathy. In a very early pieces of this series, I had warned to never buy stocks that you could not recognise, or just because they were cheap. If you bought for those reasons and are stuck with them now, you dug your own grave, I am afraid.

All in all, I would strongly recommend to look for some good value picks and purchase fresh stocks now, as there is now again, good value that has become available at current levels, in the stocks.

I hope to keep up the weekly series once again now. This is a fresh start, and hope to receive your comments on this and further pieces. If there is anything specific that you would like me to cover, please comment or write to me.

Till next week, then.. ciao!