Reading stock charts

Woes at Infosys

2017-08-22T12:20:00.000+05:30

Dear readers.
I am writing a post here after a long break. I track the market on a daily basis and trade often but I write only when there is a significant development. I think the woes at Infosys, the bell weather stock in Indian IT industry, is a significant development for sure. Specially for a chart watcher.
I have uploaded a five year weekly chart of Infosys. A quick glance at this chart tells us that we should have exited the stock around mid July 2016. I am listing the signs/triggers below. All triggers refer to mid July 2016.
1. Stock started trading below 20 and 50 EMAs.
2. Stock broke the long term uptrend line.
3. MACD showed a continuous decline, with lower tops and later dropping below '0'line. It has stayed below '0'line since then.
4. Weekly RSI dropped below 50 and stayed lower, trying to claw back above 50 but failing to do so.

I always us long term charts for exit signals. Infosys is a good company but its chart is not so good. As a guiding principle I would rather invest in a good company with a good chart and never in a good company with a bad chart.

Will follow up on this post later. Do keep visiting this place.
Disclaimer: I sold my Infosys way back in 2008 and did not buy again.

Welcome 2017

2017-01-26T10:20:00.000+05:30

Dear readers,

I am writing a new post today after a gap of almost 7 months. Though I have been studying and tracking the market everyday, it was sheer laziness to organise my thoughts and put keystrokes in that prevented me from writing new posts. Since then some major events such as 'Brexit', 'Rexit', 'Trump victory', 'FCNR redemption', 'Demonitisation of Rs 500 and Rs 1000 notes' have taken place. However our markets have been resilient through all of them.

The chart above shows that Nifty has held onto 7800 as a firm bottom and 9000 remains a solid top. Presently Nifty is trading happily above 20,50 and 200 EMAs, MACD has crossed over '0' line, RSI is above '50' and ADX is positive. In fact the market is factoring in lots of good news. Indian economy is improving slowly. DIIs are getting large inflows from domestic investors through SIPs and lumpsum investments. Thus DIIs are able to counter the outflow of FIIs. That is a very good sign. Indian govt is bringing in good policy changes such as 'move towards digital economy', 'transperancy in governance', 'single taxation through GST'. Good monsoon and hence good farm output has helped too.

My view is to invest in our stocks on a regular basis during corrections and /or continue SIPs through diversified equity funds. Our stocks ( mentioned in my earlier posts ) have corrected adequately and are set to resume a bull run. So happy investing to you all and a very happy 2017!

Which? When? Why? How much? and Fibonacci Number

2016-05-17T13:45:00.000+05:30

'Which stock should I buy', 'when should I buy', 'why are prices volatile' and 'how much return will it give me', are the questions repeatedly asked by investors. Switch on any business news channel and you will hear these queries. I wish to explain my viewpoint about them in this post.

Which stock: This is a fairly simple question to answer. A business should have good management, growth potential, diversified portfolio of projects and sound balance sheet. If we apply our mind then we will find many such businesses. We need to choose not more than ten in all. Thereafter we must get down to study them in great depth.

When to buy or sell: This is also a simple question to answer once we learn to read stock charts. Stocks must be bought when market is offering them cheap. Buy a stock when its current market price is lower than its intrinsic value. Please read my post 'Fair value'. Stocks trade in a range of prices around their fair value at that point in time. Imagine two parallel lines like a railway track. If business grows then the fair value rises and hence prices break out of the trading range. E.g. Asian Paints. It has broken out of Rs 800 to 900 trading range and is likely to head much higher. How much higher? I shall answer that a little later.

Why are prices volatile: It is futile to ask 'why' in stock markets. Why are prices volatile? Please remember that stock prices are nothing more than expression of human sentiment. We all perceive certain value and hence turn either buyer or seller. For every buy order there has to be a matching sell order at that price point. Otherwise the trade will not happen at that price point and price will move up or down depending on who is aggressive. If Bulls are aggressive then the prices will go up and vice versa. Since there are millions of investors it is impossible to know what each one perceives. This push and pull of sentiments makes prices volatile in the short term but stable in the long term.

How much return: Stocks will rise to meet their Resistance area and will fall to meet their Support area. It is as easy as that. Please read 'Top and Bottom'. If we open a one year chart and look to the left then we will notice previous resistance areas and support areas. These are stored short term memories of market participants. Stocks will move up or down to meet these targets. What if stocks are making new highs? The challenge is in identifying the new price range for a new life time high. E.g. HDFC Bank and Asian Paints. There are no resistances on the left. So we need to predict based on Fibonacci numbers. See charts below.
HDFC Bank's last move was from Rs 980 to Rs 1120. That is Rs 140. We multiply 140 by 1.618 ( The Fibonacci number). We get 226. Add 226 to 980 and we get Rs 1206.
( 1120 - 980 = 140, 140 x 1.618 = 226, 226 + 980 = 1206)

Asian Paint's last move was from Rs 700 to Rs 900, approx. Rs 200. We multiply 200 by 1.618 and we get 323. Add 323 to 700 and we get the target price as Rs 1,023.

Let us now see if this happens in the near future. Your feedback is most welcome.

Price Volume Breakout

2016-05-07T10:25:00.001+05:30

Reading stock charts offers us interesting insights into business developments of corporate entities. Since big funds and investors study markets and stocks in great depth, they deploy their funds with adequate research. There may be exceptions to this behavior but only rarely. So when they notice certain policy changes, new business prospects or key scientific discoveries benefiting a certain business they move in with their money. That fund flow moves the stock price either upwards if development is beneficial or downwards if not beneficial. The key indicator which offers insight for new development in a stock is 'Price Volume breakout'. It means that the price has risen through substantial percentage with large increase in volumes on a particular day. A prudent investor must keep track of such indicators to make good investing decisions. The following chart of IDFC Ltd is an example of such an event.

As one can see the stock has shot up by more than 10% with large volumes ( more than 30 million shares traded) on 06 May 2016. When we see this event we continue to study this stock further. Technically we notice that IDFC Ltd has been moving between Rs 37 to Rs 44 since 19 Jan 2016. Both MACDs are about to cross upwards. RSI has bounced off 50. Price has moved above 20 and 50 EMAs. Even though the price is below 200 EMA, the volume action is an indicator of good things to happen in the near future. Rs 70 could be our target price soon. Our further research shows that RBI has relaxed rules for banking companies. You can read that news here. Overall this means IDFC Ltd has come out of the accumulation phase and is likely to move up to new price ranges. Since IDFC Ltd was in my Watch List, I got the Alert. Then I moved on to Chart and then to News. Thus every dip offers a good investment opportunity in this stock.

Some more good news for global investors. Finthings now offers us data driven decision making even for US Stocks. I hope investors make sound decisions using these free tools. Happy investing!

A Trend is a Friend

2016-04-23T12:10:00.000+05:30

We have seen that big money moves the market and sets the trend. Hence it is said that " A trend is a friend ." Our stock screener and trading system identify the trending stocks for us. If we follow our system unemotionally then we stay on the right side of the market. If our stocks start moving in the reverse direction then our system must give us adequate warning to reconsider our position and exit in time. My post on such warnings is here.

I have written about the following stocks on earlier dates and have deducted their intended path. Let us see how we have fared so far.

1. HDFC Bank, awaiting a break out above Rs 1100.
2. Larsen and Tourbo, trading close to its fair value of Rs 1200.
3. Marico, in an uptrend and inching up slowly.
4. Asian Paints. trading between Rs 800 to Rs 900.
The following screen shots will show us the latest position. If market proves us right then we continue to hold onto our position; else we may change our stance.

It is apparent from these charts that our stocks are behaving as expected. Please remember that charts record historical data. What we see on the left, center and right of the chart is history. The last closing price indicated by tick/candle stick/line/ high low high bar is history.The actual price action lies beyond the right edge. Our challenge is to interpret the historical data skillfully and predict the future. Following charts compare the same four stocks over two months and one year. While Marico remains an out performer over one year, HDFC bank is emerging better over the past two months. Larsen is showing signs of bottoming out. Asian paints is stagnant.

It is possible for big funds to manipulate the future prices but they can do it for limited stocks/indices and for a limited period of time. Over the long term (weeks and months) stocks will revert to fair valuations. Thus buying good companies at fair valuations and holding onto to them over longer term always benefits. Happy investing!

Advantage Retail Investor

2016-04-09T11:58:00.000+05:30

Continuing the discussion from my last post, we need to understand that the retail investor is pitted against the big boys such as domestic and international financial institutions, banks, brokerages, high networth individuals. They all have deep pockets, the best of brains, trading systems and technology at their command. Their traders trade from multiple locations ( Singapore, Hongkong, London, New York, Mumbai), multiple markets ( Equity, Forex, Commodities) in different time zones and that too with algorithmic trading systems. They have the best of risk assessment and management practices and the political clout to know future government policies and decisions. It is these formidable traders that move the markets. A retail investor who is ill informed or misguided is likely to lose money in this big game. However the educated investor can actually benefit from the trends set in by these players if she is prudent and well informed. I recommend that we should not play against the big players; play with them instead. If the trend is up then go long, if the trend is down then go short or step aside. Reading stock charts really does help you identify the correct option.

I have listed three major advantages of a being a retail investor. Please do consider them seriously.

1. Being small has its advantages. Since our order size is very small, our entry or exit in the market does not affect the market price. So we get our desired entry or exit price. This is very significant. A big Foreign Institutional Investor (FII) / Domestic Financial Institution (FI) who needs to either accumulate or off load a stock makes his presence felt on the market price in big way and will not get the expected entry or exit price; e.g. See L&T Finance Holdings recent run up and chart here. See the price volume expansion starting from 21 and 22 March and then follow up buying on 5,6 and 8 Apr 2016. Someone is trying to accumulate big chunks of L&T FH and he has to pay higher and higher price to acquire big lots. Starting with the first price of Rs 57 the price has risen to Rs 73 by 8 Apr, 28 % appreciation in less than one month. A retail investor can get in and get out many times during such activity. The chart is given below.

2. FII and FI traders and investment managers have to keep cash ready for redemptions. Their investors may need their money anytime due to various reasons, various fluctuations in the global markets. See the crude oil chart below. The rapid fall in the crude oil from $70 to $ 30 has crushed many economies including Saudi Arabia, Gulf states, Russia etc. That has forced them to liquidate their financial assets in various markets for whatever the price. This fall is mirrored in the fall of equity markets worldwide. See Nifty chart here.

These forced redemptions is a constant worry of the fund manager and this is an advantage for the retail investor who can get many good stocks at lower prices. A retail investor need not keep such cash ready for short term needs. If only long term funds are invested in good stocks then let them be invested even through market volatility, till the goals are reached. For short term needs, liquid funds are a safe option. Their dividend is tax free, they are easy to redeem and they do not have entry /exit loads.

3. The fund manager is mandated to invest only upto a certain percentage into a country, index, sector and stock. He can not exceed that limit even if he is absolutely certain about the future growth of that market/sector/stock. A retail investor is her own boss and can decide to invest all her money in one stock or exit all her holdings from a single stock. This is an advantage and must be used as such. However prudence suggests that diversification is a better safety net.

Thus a prudent and educated retail investor has as good a chance of becoming a successful stock market investor as the resourceful fund manager or HNI. The key is in education, practice and self discipline. Real wealth can be created through stock markets when we educate ourselves seriously. Happy investing!

Top and Bottom

2016-03-28T12:43:00.000+05:30

Everyone aspires to make money from the stock market. If everyone wants to make money then who will be paying that money? It is obvious that money is made from the other investor who has exactly the opposite view on the stock you wish to buy or sell. So stock market is a 'zero sum' game. One must accept that we may not be able to make money every time. The simple rule is to ride our winning stocks and sell our losing stocks before they cancel out the profits. Building profits and limiting losses is the only method to create wealth.

So we must know when the rising stars in our portfolio are nearing a Top formation and are likely to lose steam and start a Correction. The Top could then be used to take partial profits. The rest of the investment in that stock could continue to ride further as the stock rallies again. Sometimes the stock may not rally again but continue in a Down trend  thus taking away all our profits. This is called a Trend Reversal. Educated investors should be able to  differentiate between a Correction and a Reversal. There are specific signals available to indicate these important data points.

The exact opposite of this theory is Bottom formation. Here the down trending stocks find a support because sellers are unwilling to sell at lower prices. (Remember buyers are always wanting to buy at even lower prices.) These bottoms are good opportunities to accumulate quality stocks at reasonable prices. I have listed these alerts below for your reference.
FinThings.com has a specific link for signalling these events. That link is called alerts. Some of these alerts are given below.

Topping out signals/alerts
Candle stick pattern daily – Bearish engulfing
Candle stick pattern daily – Three black crows
Fast MACD crosses below Signal line
Price crosses below 50 day EMA
RSI (14 ) is greater than 70

Bottoming out signals/alerts
Price crosses above 50 day EMA
Price crosses above 200 day EMA
50 day EMA crosses above 200 day EMA
Candle stick pattern daily – Bullish engulfing
Candle stick pattern daily – Three white soldiers
Fast MACD crosses above Signal line

Each of these alerts signifies an important event. I have given an example of Asian Paints Ltd. Chart is given below.

The stock has formed a significant Top at around Rs 900. It touched Rs 900 on 10 Aug 15, 10 Feb 16 and 14 Mar 16. It showed the following alerts in the recent days.

23 Mar 2016	50 day EMA crosses below 50 day SMA (Bearish)
21 Mar 2016	14 day RSI (45.22) crosses below 50%.
21 Mar 2016	Slow MACD (19,39) crosses below Signal line. (Bearish).
21 Mar 2016	Closing price crosses below 50 day EMA (Bearish)
21 Mar 2016	Closing price crosses below 50 day SMA (Bearish)
18 Mar 2016	14 day RSI (50.51) crosses above 50%.
18 Mar 2016	Fast MACD (12,26) crosses below Signal line. (Bearish).
18 Mar 2016	50 day EMA crosses above 50 day SMA (Bullish)
17 Mar 2016	Closing price crosses above 50 day EMA (Bullish)
17 Mar 2016	Closing price crosses above 50 day SMA (Bullish)

The alerts were useful in warning us about the impending weakness in the chart. Going by the above alerts, it is visible that the stock is unable to go beyond Rs 900 range thrice. This is a triple top formation which happens to be a very strong resistance. It is wise to take some profits here. The stock is trading in a broad range of 800 to 900. Rs 800 is a useful entry point to accumulate the stock for the long term.

Happy investing!

Portfolio Alerts

2016-03-19T11:27:00.000+05:30

We need to monitor our portfolio regularly so as to check its performance. FinThings has designed a separate link for 'Alerts' on our stocks in the portfolio. They are delivered in our mail box regularly and help us focus on those stocks and take remedial actions. Let us take examples from 17 March alerts.
We had discussed Marico on 01 March 16. ( Read here.) Let us follow it up and see how it is doing now. On 17 Mar 16 there were two alerts for Marico.
17 Mar 16
1. Traded Quantity is more than 213.13% of 30 day average traded quantity and Price moved up by 2.21% (Bullish)
2. Price moved up by 2.21%
Price moving up with significant increase in traded quantity is a good sign for the stock. The chart below shows the recent developments.

The stock is trading well above two EMAs (50,200). MACD is above '0' line and RSI is staying above 50. This is an indication of a strong stock. Bulls are in control and stock is in strong hands.
Here are two more charts showing comparison of Marico with its peer companies and NIFTY.

This process of follow up strengthens our belief that the Screener had selected a good stock in the first place. As a rule if the market proves you right then you are on the right path. If the market proves you wrong then please do not fight it. Market has the ultimate wisdom. Marico remains a good stock to look at and accumulate. Happy investing!

Fair Value

2016-03-10T11:19:00.000+05:30

I am very happy by the response to my posts and queries asked by readers. It encourages me to think anew and connect better with readers' thoughts. So please do post your comments, send mails, whatsapp whatever.

So far we have seen the use of Screener. The screener throws up multiple stock picks at us. All stocks meet our criteria but not all of them are investment worthy 'Good' stocks. 'Good' stocks are those that have great management team, bright business prospects and diversified portfolio. As a rule Good stocks must be purchased at Cheaper price i.e. Fair value or fair price. There could also be many stocks that are very cheap but they may not be fundamentally sound investments. Please avoid them at all times. Fundamental Analysis (FA) comes first before Technical Analysis (TA). FA finds us the right company to invest in and TA gives us the correct price and time to enter. Going purely by Charts/price action/TA is neither scientific nor safe. Do read a reader's comment and my reply here.

Now let us analyse the fair value of Larsen and Toubro, a good stock as per my understanding. Remember that long term charts are excellent indicators of fair value. Using long term charts I had seen the correction setting in this stock from Sep 2015 and decided on no further investment in Larsen till it reached its fair value. Please read my post dated 31 Oct 2015 here. I had identified that Larsen's fair value is close to Rs 1200. Reading charts helped me predict the value erosion and hence saved me from capital loss.

Let us now discuss two charts here and see how simple indicators can help us protect our capital.
Given below is a screenshot of Larsen chart dated 09 March 16, 5 Years Duration, Monthly Candlesticks.

The above chart shows that investors were willing to pay upto Rs 1200 for Larsen in Jul 2011 and then again till Mar 2014 before its upward break out towards Rs 1888. Remember that it is the buyers who decide the upper most price and the sellers decide the lower most price. After Mar 2014 buyers were inclined to pay higher than Rs 1200 and the stock rallied to Rs 1888 in July 2015. Thereafter the correction set in and sellers have been selling the stock all the way down to Rs 1050. Now it has rebounded and is trading close to Rs 1200, its long term value proposition. Anyone who buys this stock at or below this price is going to benefit from its growth in the future. Anyone who studied this five year chart could have taken an exit call as he/she saw the red line of EMAs crossing below the green line. That signal is too powerful to be ignored. Thus an informed investor can take useful decisions based on simple long term technical indicators. The same technique can be used for many other stocks and can be back-tested using FinThings. For example please see Asian paints charts.

Screenshot of Larsen and Toubro Vs NIFTY chart dated 09 March 16, Duration 5 Years.

From the chart above it is seen that Larsen has been under performing the NIFTY till Jul 2014. Thereafter it gathered steam and performed much better than NIFTY before turning weak from Aug 2015. As a simple indicator to invest in Larsen, one could buy when the black line of Larsen started inching closer to the red line of NIFTY and and dis-invest from Larsen when the reverse happened. These indicators are easy to understand and easier to execute without emotions involved. As of today, the black line (of Larsen) is again inching towards the red line (of NIFTY). Hence the stock is a potential investment target for many institutions and investors.

In my next post we shall discuss more subtle technical indicators for finer analysis.
Your comments and feedback are most welcome.

Capital First

2016-03-01T22:05:00.001+05:30

There are just two rules for prudently investing in the Stock markets. Rule No 1 states, ‘Capital must be protected’ and Rule No 2 states, ‘ Do not forget Rule No 1.’ On a serious note, it is essential that we learn to preserve our capital because without that there is no more investing and wealth creation. In this article we discuss preserving our capital; Capital First.

When new investors approach the equity markets, they usually have this question. “What if the stock price goes down after I buy it?”, “What if the stock price goes up after I sell it?” It has been observed that retail investors are usually the last to ride the bullish trend and last to offload from a bearish trend. They are then left holding the stock for a long time and thus become ‘long term investors’. This happens because they lack the tools to know the right entry and exit strategy. Investor education can change this behaviour and mind-set. In today’s knowledge driven environment, most of us are actually well equipped to handle our own portfolios with some basic tools. An effective trading system is one such tool. It will tell us the right entry point, keep us invested during the bull trend and indicate to us the trend reversal well before it happens so as to protect our capital. Remember what Rule No 1 says, “Capital must be protected.” In the bargain we would have also generated above the average returns on our capital.

Let us see Moving Average Cross overs as a simple trading system. We open the Screener and select stocks using 50 D Exponential Moving Average (EMA) above 200 D EMA, Closing price above 50 D EMA and 200 D (EMA), and rate of Change 250 D (%), Market Capitalization above Rs 1000 Crores.

We get 37 out of a possible 1441 securities. I select them from high to low market capitalisation. Marico strikes me as the one with a reasonable P/E ratio of 44.24. It has also outperformed the NIFTY by over 18% in the past one year. The stock has been making new highs when the market is falling. Institutions have been increasing their stake in the stock. This stock merits attention and will be watched. This is a stock to invest in. We now identify the price range for our entry based on supports. These happen to be Rs 220 and 210 respectively.

Please also see the following screenshot of Marico. Marico has outperformed NIFTY by almost 40% over the past one year.

Note:- The screenshots and number of securities mentioned above are as per 01 March 2016 data.

Welcome to the new trading system. Like Ali baba’s password “Khulja Sim Sim” that opened the door to the treasure cave, this trading system opens the door to wealth creation. We are on track to learn to navigate in the vast ocean of equity investing!

Introducing FinThings

2016-02-20T13:55:00.002+05:30

FinThings

www.finthings.com

Many people consider investing in equity markets a risky proposition. Even more so today, since Indian stock market has been going through a carnage due to world markets and FII selling. Everyone wants to find strong stocks to invest in. Stocks that have stood up and maintained their value even in this weak market. One needs a strong heart for that. However, with the right tools for research, it is possible to select good stocks to invest in even today. We can then identify the correct levels to buy them.

Since every stock essentially represents a business, it has an underlying value. The value is based on it's assets, liabilities, business growth prospects and management strength. There are a plethora of websites and apps to identify the right stocks and carry out fundamental research. One can get overloaded with data from multiple sources and still may not find the right solution.

Enter FinThings. Here is the platform that gives you multiple options for technical and fundamental research. We have been using this site and we find that the website is easy to use for a beginner and also meets the demands of a professional trader/investor. We shall introduce its features to you in a series of articles.

Let us say that we want to invest today. We need to know the strong/weak stocks and their price ranges. We want to know market breadth, sectoral breadth. We want to know the P/E ratios, various technical parameters, dividend yields, delivery percentages/volumes, moving averages, the stock’s performance vis a vis various indices (NIFTY/SENSEX), its shareholding pattern, corporate actions and various relevant information from one source. We want to create our own stock screener and also create our own trading system using own parameters. All this and more is now possible with FinThings.

So we open the website and follow a simple process to create our log in. The response from their tech team is prompt. Once logged in, we reach the easy to use interface. Let us now move directly to the Screener. The screener has Four basic entries viz. Sector, Index, Technical (Indicators) and Parameters (Fundamental). Let us say we want to know stocks that are strong. So we select ‘Fast MACD above Signal Line’, ‘Closing price above 50 EMA/ 200 EMA’ and ‘50 EMA over 200 EMA’, ‘Rate of Change 250 D (%)’. This selection will fetch about 34 stocks from about fifteen hundred available. The screenshot of this screener is given below.

We then select some among them based on their market capitalisation, from high to low. Here we have Bajaj Auto, Eicher Motors, Ashok Leyland etc. Now you open the chart for each one of them and find the fair values on support and resistance.

This has opened a door for you. You will now be able to hunt with the bears and run with the bulls. In the next one we shall cover how to create a trading system. Happy investing!

Links: Glossary, Alerts

HDFC Ltd...awaiting a break out

2015-11-26T12:05:00.000+05:30

Housing Development Finance Corporation Ltd ( HDFC Ltd)
I got an alert from www.finthings.com about HDFC Ltd on Thursday. The alert is as follows.
HDFC Ltd
Price moved up by 2.33%
Fast MACD (12,26) crossed above Signal line. (Bullish).
Traded Quantity is more than 61.05% of 30 day average traded quantity and Price moved up by 2.33% (Bullish)
So I checked its chart.
The stock shows a firm support at Rs 1,160-1,170 price zone. Accumulation is happening at this price zone. Volume has increased significantly. It shows conviction. The stock should be watched.
It will go back to Rs 1,350. Beyond that it is all blue skies.

200 EMA: The battleline between Bulls and Bears

2015-11-18T11:22:00.000+05:30

Today I got an alert from http://finthings.com/ about MRF, having a 200 EMA crossover.
So let us analyse the 200 EMA. This is an exponential moving average of prices over the past 200 trading days. They say that Bulls reside above this line and Bears below. MRF is showing strength to sustain its prices above the 200 EMA. It is also finding price support zone at the same place; Rs 38,000. The stock was overbought at Rs 46,000 and corrected gradually, drifting all the way to Rs 38,000. The stock had rallied from Rs 32,000 to Rs 46,000. That is Rs 14,000 ride. It has now completed its correction of Rs 8,000, i.e. more than 50 %. All these indicate that there is a reasonable chance that the stock has completed its correction and is now in a consolidation mode. A rally to Rs 42,000 is possible in the medium term.

Larsen & Toubro ( L&T ): My favourite company and its battered chart

2015-10-31T10:43:00.000+05:30

Larsen & Toubro
L&T made a double top at Rs 1,900 and started a steep correction from 07 Aug 2015. Yesterday's second quarter results have battered the chart further. It found its long term support at Rs 1,400 yesterday. The current EPS of L&T is Rs 52. At 15% growth, the next EPS would be Rs 59.8 ( 52 x 1.15 = 59.8).
At Rs 1400, the P/E multiple works out to 23.5 ( 1400/59.8=23.41). Even this is overpriced.
I have a feeling that L&T may test the long term support deeper down at Rs 1,220. ( 1220/59.8=20) at a comfortable P/E of 20.
For traders the trading zone lies between 1400 to 1600 and may be 1220 to 1400. It might take a while for the stock to retest it lifetime high of 1900. So be patient. Trade it or keep it or accumulate it. A blue chip is a bluer chip at even lower and lower prices.

HDFC Bank: Awaiting a breakout beyond life time high

2015-10-28T10:39:00.001+05:30

HDFC Bank is my favourite stock these days. It is showing all signs of a new breakout. It is likely to go beyond its lifetime high sooner than later. EMAs, MACD,RSI,Candlesticks...all indicators are indicating a 'Go'. Investors in search of a wealth creating idea could look at this stock and take their call.

Next two months

2014-09-16T09:23:00.000+05:30

Some thoughts on how I feel things will pan out in India. In politics, election results of three Loksabha and some assembly seats are being declared today. The party in governance is likely to look forward to these results very keenly. Subsequently elections in Maharashtra and Haryana are likely to weigh heavily on their mind to assess their future plans of governance.PM's Japan and China interactions are likely to lead to major investments in the short term. PM's forthcoming US visit is also likely to encourage investment in India. These events are likely to strengthen INR Vs USD but RBI is not going to allow further appreciation of INR. In corporate developments, HDFC and HDFC Bank merger talk is gaining currency. Both scrips are likely to be in demand. Talk of SUUTI stake sale is in the air. hence ITC and L&T may see depressed prices because supply is imminent. IDFC is likely to witness some real price appreciation once they take steps towards their banking foray. Infrastructure projects are being approved by govt in a big way. Infra companies are likely to get good deals and announcements are likely to follow soon. Even though the profits accrue much later, market is likely to reward companies much earlier (close to announcements.) Drop in crude prices is going to benefit Tyre and Paint companies. So also reduce India's current account deficit. Petrol and diesel prices should drop. Inflation, hence also will be lower. So in short Indian economy is likely to see much better days sooner than later.

Back to writing again

2014-09-15T17:00:00.000+05:30

It has been a long time since I wrote a post here. Good to be back. I was just reading my old posts. My observations from 2011 and 2012 have stood the test of time. India has voted a new government to power and decision making has improved. We also hope to see new impetus to growth, a focus on development and signs of economic recovery. So it is good to be back to writing my observations here.
I have put up my favorite Larsen and Toubro chart. The price rise is a sharp reflection of optimism of the market participants. See how it has moved up from Rs 1200 to Rs 1750 in a matter of four months. Presently Rs 1750 seems to be the top range for Larsen. New buyers are willing to enter at Rs 1450.
Even though I did not write a post here for so many days I have been tracking the market daily. I hope to be writing this blog regularly now. So do visit this page more often. You could see some new ideas. rgds

Human Traits 'वृत्ती'

2012-06-30T09:22:00.002+05:30

'सात्विक', 'राजस', 'तामस ' are three types of 'वृत्ती' ( 'vrutti' / trait) in every human being. 'Satvik' individual is Conscientious, Ethical, Righteous. 'Rajas' trait results in aggressive, dominating and materialistic behaviour. 'Tamas' trait leads to lazy, free loader behaviour. These traits vary in different proportions in different individuals. All three are essential. Every behaviour is an outcome of dominance of one or the other trait. One can not eliminate any trait. The fight between these three traits will happen till eternity. This fight happens daily, inside our own mind, in families, in societies and between nations. It happened in Ramayan, Mahabharat, World War I and II. However Nature has empowered us to ensure a balance between the three traits.

So what should we do when we see dominance of 'Rajas' or 'Tamas' trait around us?
We must stand up to it. We must reduce its influence on situations. We must continue the fight with the evil force. Each one of us has a 'Sphere of influence' around us based on our position and power in organisation/society. It could be large or small.The size does not matter. This 'Sphere of influence' must be put to good use. This will restore balance. It takes time but it works. It has worked for so many centuries.

'Good people must assert themselves'. That is the key.

rgds

Vibhas

India Story

2012-05-22T12:04:00.002+05:30

It is difficult to be an optimist in India today. Lack of policy action from the central govt has paralysed the Indian economy. Money is flowing out of the country making Indian rupee a weaker currency. Stock valuations are low, investor confidence is close to zero, there is only bad news all over. So what does a retail investor do in such a scenario? I have thought over this and have some points to make.

1. Long term investments can certainly be made in quality stocks at these valuations. Please do not look at stock prices on a day to day basis because it really means nothing.
2. Diversify your investments in equities, gold, real estate, mutual funds. Presently though gold and real estate are already at a high level, only equities are cheap.
3. Please refrain from future and options segment because it is a double edged sword. In a volatile market it cuts really hard both ways.
4. Please create awareness in your friends and acquaintances that we need to reform our electoral system drastically. We need to bring in proportionate representation. A voter may be allowed to vote for a party and the party votes then pooled together to decide how many elected representatives are sent to govern us. During the recent celebrations of sixty years of Indian parliament, Sitaram Yechury wrote extensively about it.
5. We need to change political funding. We need to bring in inner party democracy in all political parties. Today only about fifty people decide policy issues in this country. They have their vested interest of staying in power in perpetuity. That is not in the best of the nations's interest.

I am an eternal optimist though. Things are going to change. Reforms will happen. Indian equities offer the best upside from here on.

rgds
Vibhas

Our Investments for Good Quality Life: My personal experience

2012-01-09T11:41:00.000+05:30

Having reached the middle age, one tends to introspect on how life was spent so far and how it can be utilised in a even more effective manner. I have hence conducted a small audit and have identified four critical things to enjoy a happy and fruitful life. Your comments are welcome.

1. Health. One must enjoy a healthy, long, disease free and blissful life. This is the bottom line. All efforts are towards achieving this. Healthy, long and disease free life can be earned by slowing down pace of life thereby reducing stress and hence ageing process. Regular exercise is essential for this aspect. Open air exercises, fresh air and sunlight, adequate sweating and deep breathing are a must.These habits are to be formed. Once formed they bring in small but effective changes in our body systems naturally. Adequate deep sleep is essential for good health. Specially half an hour siesta post lunch. It is heavenly.

2. Relationships. Investing in deep and bonding relationships is essential for a blissful and complete life. Spouse, children,parents,uncles and aunts,cousins, nephews,nieces, coursemates, friends,acquaintances......

The list is long. What is essential to note is that each relationship has an unwritten Emotional Bank Account (EBA). We can not withdraw more than what we deposit. We need to invest in EBA of each relationship on a regular basis and withdraw hardly ever from it.

3. Bank Balance. One must have adequate bank balance to enjoy good quality life. How much is enough is dependent on one's 'wants', not 'needs'. Needs are really not very much. It is the 'wants' that create the desire to amass wealth. As long wealth is created ethically, it gives you peaceful sleep. Unethical wealth creation goes against our very aim of 'blissful life'. Always remember, 'money is a good servant but a poor master'.

4. Time. All the above mentioned factors are governed by one important element. Time. We live life in the present moment. This moment can not be stored, recreated,carried forward. We must be masters of our own time. Let no one else command our time more than what we allow. Life is to be enjoyed this very moment, every moment. While we do not have control over flow of time, we must have control over the quality of our time. This is possible and must be exercised.

Thus good health, warm relationships, strong bank balance and free quality time are most critical elements to enjoy good quality life.

Wish you all a very long,healthy,wealthy and blissful life.

rgds

Vibhas

Capitulation? Or is it darkness before the dawn ??

2011-12-16T22:06:00.000+05:30

Dear readers,
It has been sometime that I wrote my thoughts here. Paralysis of governance and economic crisis in the west has compounded our problems. Hence our equity markets are going lower day by day. Pessimism is galore. Analysts, media are expecting NIFTY to tank to 3800....! There is blood bath on the Dalal Street. No stock is safe haven and we do not know where and when bears will strike.It is in such times that great investments are made.

My questions are: Is India worse off than in 1991 or 2008? No.
Have Indians lost their zeal, tenacity and ability to work hard? No.
Are we short on resources and manpower? No.
Has Indian Industry lost its competitiveness? No.
Are Indian banks burdened with so much debt that they are likely to collapse? No.
To most questions the answer is a resounding 'No'.
Then why are Indian stock markets collapsing? The answer is lack of depth. Even small amounts of concentrated selling can bring down our markets in a jiffy. We have seen it earlier and must learn our lessons. There is no need to panic at all. Today's sell off could have been triggered by some such concentrated selling followed by margin calls and 'stop losses' being hit.
There are so many stocks available at mount watering valuations. No research required. No financial adviser required. Save on all such costs. Just buy them in a staggered fashion. And hold them for a year or so.
Trading in F&O is dangerous specially in this kind of volatile market. Cash markets and delivery based buying or selling is recommended.
Lastly one point to remember. When there is strong momentum specially downward momentum, no levels/supports can be assumed or predicted. It is a waste of energy to even look at technical charts. Buy stocks at reasonable valuations and you will not repent. These investments are likely to reward us faster than the ones made earlier.

Happy investing.
regards
Vibhas

Paralysis of Governance

2011-11-01T10:59:00.000+05:30

Do read the following letter.
We discussed this topic in this blog many times before.
rgds
Vibhas

http://timesofindia.indiatimes.com/india/Azim-Premji-slams-govt-paralysis/articleshow/10562289.cms

BANGALORE: The complete absence of decision making in the government, coupled with corruption, is the biggest challenge facing the country, Azim Premji, chairman of IT majorWipro, said on Monday.

At a press conference to announce the second quarter results of his company, he responded to a reporter's question on what he thought were the country's biggest concerns. "There are governance issues, but we are hearing a little less of that compared to a month ago. There is a complete absence of decision-making among leaders in the government," the billionaire entrepreneur said.

"If prompt action is not taken, the country will face a setback. You must appreciate how serious it is."
Last month, Premji was among a group of eminent personalities who had in an open letter to national leaders expressed concern over the governance deficit.

"We are alarmed at the widespread governance deficit almost in every sphere of national activity, covering government, business and institutions, the group had written.

In a letter to the PM last month, a group which involved him wrote, "Widespread discretionary decision-making have been routinely subjected to extraneous influences. Possibly, the biggest issue corroding the fabric of our nation is corruption. This malaise needs to be tackled with a sense of urgency, determination and on a war footing." Others in the group included Keshub Mahindra, chairman of Mahindra & Mahindra and Deepak Parekh, chairman of HDFC.

The group also wrote a letter acknowledging the existence of a "strong nexus between certain corporates, bureaucrats and power-brokers" and suggested a number of reforms in areas such as the judiciary, police, land acquisition and environmental clearances.

Asked about the government's reply, Premji said, "As far as the open letter is concerned, the reaction of the PM has been positive to it in terms of taking it on record."

Happy Deepavali

2011-10-27T11:22:00.000+05:30

I have been writing this blog since Oct 2006. That is five years of tracking this market. We have been through a bull rally in 2007 followed by the bust in Jan 2008. Market bottomed out sometime in Mar 2009. It then rallied again till Deepavali 2010. Since then it has been correcting till this Deepavali. I have a feeling that the correction is almost over both time wise and price wise. We are all set for a new bull rally from now on. Macro economic indicators suggest that rate tightening cycle is about to reverse sooner than later. Inflation should also be down. Market participants will look at indices more rationally now on. Fear determines the short term trend and hence the downtrend. It is in these fearful times that we do not need to research for good stocks for they are also available pretty cheap.

From now on I shall be writing regularly. At least one post a week. So do visit this blog regularly.

Wishing you all a very happy Deepavali and a prosperous new year.

rgds
Vibhas

Market Review

2011-08-15T14:19:00.000+05:30

It has been a long time since I wrote my previous post. I could say that nothing much has changed since then and hence the delay in my next post.
If US debt rating has been reduced, it was nothing out of the ordinary. We knew it had to happen. Market reacted to it and has absorbed that well. US has a problem but it is not going to default on its payments for sure. US dollar is going to be weak in the long term but not in a hurry.
Interest rates are very high in India and could go up higher. Market has that digested too. We also know that interest rates are going to cool off sooner than later and that would bode well for our economy.
Oil and other commodity prices have reached higher levels but crude is going to stabilise at current levels if not lower. Slow American growth means lower oil prices. That is good news for inflation in India.
Our government is showing some action on public policy front. I expect strong reform action to appear in the next quarter.
Considering these factors I am buying good stocks at bargain prices. Things are looking up and a patient investor is going reap good dividends in a year's time-frame.

regards
Vibhas

Long term investing

2011-07-02T09:52:00.000+05:30

Stock market is 'the' place for long term investors. In Indian markets sentiment has always been the key driver for price fluctuations. Hence someone who is buying in the cash markets has always benefited from volatility. Our stocks in focus have been HDFC, HDFC Bank, SBI, Larsen and Tourbo. Look how their prices have moved within almost a 30% range without any apparent change in fundamentals. ITC is another great story that is on its own bull market irrespective of market sentiment. Titan appears to have settled down in a range for now. NTPC has been beaten down but is a good long term bet always. Petronet LPG is a safe stock to buy and steady the portfolio. IDFC has been beaten down too. It provides a good entry to new investors and averaging opportunity to old ones. SBI is starting its recovery. From 3500 it had dropped to sub 2200 levels. These are all good stocks which gave us opportunity to buy at different points of time. Timing is always a tricky issue. No one can time the market correctly consistently. One may get it right few times but would also lose out on equal number of times. So smart investing is buying stocks at their support levels and taking out money only when it is needed and and when stocks are at their important resistance levels. A look at one year chart would give good indications for that.

Let us now see how the result season pans out. Till then pick up gems that have not yet moved up smartly.

rgds

Vibhas