Monday, September 15, 2008

When will a time come to buy ?

As I write this post at 8:57 in the morning, Lehman brothers is expected to file for bankruptcy, S&P Futures are down almost 3% and the Nifty is trading lower by 130 points at 4085, in Singapore.

There is a temptation to buy. After all, how much lower can it get ? Remember, this is dangerous thinking. What stops the Nifty from breaking below 3800, and finally reaching 3200 or even 2650 ? I am not suggesting this will happen. My point is: never go against the market. If this market is ready to move up, then there will be signs : support will emerge, momentum will slowly change in favor of the bulls. The correct way to think this is: At 4000 levels, the Market is attarctive, therefore I will buy whenever there are signs of favorable momentum.
Any given level is NOT a buying or selling opportunity. Market action at that level creates the opportunity.

1 comment:

Shashank Jogi said...

Is Nifty a 4000 really an attractive level?

If you are a trader speculating purely on price, it really does not matter to you. After all price is God, and you follow the price.

If you are a fundamental trader, think again. Fundamentals include not just earning growth but also valuations and liquidity. The scenario for both earnings growth and liquidity are challenging. And valuations are not yet 'cheap' (with a caveat that the definition of cheap depends upon the investor's return requirement and time horizon).

Even at Nifty 4000 levels, the 12 month trailing PE will be close to 17...not cheap.

What about earnings growth. Consensus FY09 earnings estimate Rs. 1000 on the BSE Sensex, thereby making the Sensex at about 13200 (approx level corresponding to Nifty at 4000) quoting at 13+ forward look cheap.

But anyone who thinks FY09 earnings of the Sensex would be Rs.1000 must be smoking something really strong. Here's why. The EPS of Sensex for FY08 was Rs.777 (source BSE). To expect EPS to grow to Rs.1000 for FY09 means a growth of 28.7%...ask yourself if this is likely to be achieved in the current scenario. Note that in the last 5 years boom, Sensex EPS has grown by 27.5% CAGR. Even in such a boom, a growth of 28.7% was not achieved.
Even if the sensex EPS grows at 15% each year for the next 2 years, the EPS would be 1027 by FY10 and not FY09.

The main thing is not to get blinded by feel-good talk or long term value or such statements. As Keynes had said,"in the long run, we are all dead". The investment world is changing and the eventual winners will be those investors who will have capital left to invest whenever the pain ends, whenever that happens.

In any event, as Sudarshan has said, wait for favourable momentum to return.