India Stocks: Value emerging amidst Volatility

Monday, November 17, 2008

I have been writing for some time that the market is forming a bottom. My reasons have been in expressed in previous posts...and include earnings projections and GDP projections.  My general thesis has been that stock market growth from 2006 to 2008 was speculative and the global financial crisis has knocked us back to 2006 levels.  Recognition in the market has come slowly; now analysts who thought there was no limit to the upside are projecting downsides with the same asnine logic.

There is a disconnect between the equity market outlook and all the bearish economic commentary from brokerage and investment houses. All of the advisers are calling for significant falls in Indian stock markets but they are also saying that GDP will continue at a 'relative' healthy pace. GDP projections for India range from 5.0% to 7.5% in 2009-2010. A growing economy is not bad when there is a world-wide recession. India needs foreign capital to grow at its potential..we have seen that GDP growth can approach double digits when the stars line up. The market capitalization of India was out of whack in January 2008...however, it was not out of whack in 2006. And today, stock markets are back to 2006 levels.

Today I put in buy orders at Nifty 2700 and was filled...this increased my equity allocation to 9% at an average of Nifty 2766...leaving 91% in cash. I will continue to increase allocation by 5% for every 100 pt drop in fair value on Nifty is at 2500...but the probability of a liquidity event keeps increasing..below 2500 I will add 10% for every 100 pt drop in Nifty as I expect increased volatility if markets drop below 2500.

In a global recession, growing well governed economies will attract capital...long term value conscious capital.  Keep your eye out for good companies...there are many...soon even DLF and ICICI might be buys! Good hunting.

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