India Stocks: Managing Risk #5

Monday, December 01, 2008

Volatility continues unabated...When markets move more than 10 to 15% away from my fair value levels I sell on the upside and buy at back closer to my fair value levels.  The current volatility makes this a money spinner.

Realty sector is in focus...and this creates associated dislocation in the banking sector.  I sold my long position in Bank Nifty at 4400...and it executed at 4150 on the downside.  Rs. 250 in the pocket...risk position unchanged.

With the Mumbai tragedy in focus and the government in damage control mode...the governments ability to manage economic challenges is diminishing.  There is no talent in the Congress party...The Prime Minister is now the Finance Minister and the Minister of Coals and Mines and who knows what else.  The spend-thrift former Finance Monster (not a typo), who has made a mess of the economy is now in charge of Internal Security..the Home Minister.   It took four and a half years, during which time more than 4,000 lives were lost to terrorist attacks, for the Congress government to realize that the Minister in charge of Internal security was incompetent.  In a bizarre reminder of Catch-22, the government knew the Minister was incompetent but was not willing to sack him earlier because it would have been interpreted that a minister of the government was incompetent.

Unfortunately, everyone knows these changes to political Portfolios  have been made with an eye on state elections and general elections in spring 2009.  This political party and government does not understand the gravity of the situation...without a strong security apparatus there is no economy...and it will take some bold and initially unpopular decisions to make it happen.  When the constraint to decision making is vote-bank politics, it is not possible to make tough decisions.

We have no way to sustain an up move in Equities in this macro-Indian scenario.  So, expect a reversion to minimum fair value.  And I keep managing my portfolio with that thought front and center.

Since November 1, 2008 Lee's Dhaba portfolio is up 8%.

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