2 things to avoid when markets are down

Feb 18, 2011

In this issue:
» 'BIMARU' Bihar no longer 'Bimaar'
» Bangalore tops the list of India's booming cities
» UPA govt. starts clean up- scraps the space agency deal
» High cotton prices killing textiles?
» ...and more!

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When markets are down, most investors start panicking. It's a normal reaction. After all who will not panic when they see their hard earned money going down? But this panic leads to the most irrational behavior. At such times they would do well to remember 2 most important things.

The first one is to "not start bottom fishing". Most investors who think of themselves as rational, start calling the bottom for different stocks. They start looking at all available data to identify when the stock will bottom out. They prefer to stand on the side of the road before picking up any investment. More often than not, these investors end up not investing at all. They miss all good opportunities. The truth is it is almost impossible to call the "bottom" for any stock. It is better to have a valuation band in mind rather than having a bottomed out stock price in mind. Invest when valuations are low so as to not miss out an opportunity.

The second thing is to "not sell in panic". This is something most investors tend to do. When they see prices of stocks hitting new lows, they tend to panic and sell their investments. But at such times they should actually question as to why are they selling? If there is nothing wrong in the company's fundamentals then just selling for the sake of it, just doesn't make sense. Instead such falls should be viewed as an opportunity to buy more of the good stocks.

Markets are driven partly by fundamentals and partly by emotions. When emotions run at a tangent to fundamentals, and the markets fall, it just indicates a good buying opportunity. It would do well for investors to treat market falls as an opportunity to pick up their favorite fundamentally sound stocks.

Have you managed to overcome the above mentioned emotions? Share your comments with us or post your views on our facebook page.

 Chart of the day
India's "demographic dividend" is something that is most talked about when one refers to the country's growth story. It is this that will drive the future growth for the country. Today's chart of the day shows the numbers behind this demographic dividend. The growth (2010-2015) in India's working population, i.e., in the age group 15 to 64 years, is expected to be the fastest in the world. This is the growth rate from 2010 to 2015. It is even faster than that of China or of US. This is the population that would be driving the growth for the country through consumption.

Data source: US Census Bureau

BIMARU is an acronym coined by the noted demographer Ashish Bose way back in the 80s. It referred to the four states of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh. The reason they were termed so was because the economic growth in these states used to come in much lower than most other states in the country. As a consequence, they were seen pulling down the overall economic development of India. But we believe a lot of water has passed under the bridge since then. Fast forward to more than 30 years and the syllable 'Bi' could well be on its way out from the term. This is because as per a leading daily, FY11 will be another fiscal where the state of Bihar will outperform the overall national GDP growth rate by a good 2%. From being an epitome of everything that is wrong with the Indian growth story to its current status of being amongst the fastest growing states in the country, Bihar has indeed come a long way. The pro-development stance of the current Government in the state and vastly improved law and order situation have been at the forefront of this change we believe. Fortunately, going by the situation on the ground, the state's economy is only likely to get better from here on.

Here is a question for you. Consider parameters like infrastructure, job opportunities, modern consumer services and a city's ability to mobilize savings. Now, based on these criteria which Indian city would you rank first? Well, according to Morgan Stanley's findings, Bangalore, which is India's "Silicon Valley", ranks first. The results are based on the City Vibrancy Index (CVI). And guess where Mumbai ranks? Far below at number 21.

Over the next couple of decades, India is expected to see an enormous urban transformation. Many Indian cities would become larger than many countries, in terms of population size and GDP. However, India's spending on infrastructure lags way behind that of China. While we spend a mere US $17 per capita on urban infrastructure, China spends a whopping US $116. If not for the poor infrastructure, our economy would be growing higher by 2%.

There has been no respite for the Indian government on the telecom front as a slew of scams and scandals in this sector continue to rock its boat. The latest development is the dubious pact between Antrix Corp (the commercial arm of ISRO) and Devas Multimedia wherein the latter was given scarce radio bandwidth for free. This has now been scrapped amidst allegations that the contract could have caused the government losses worth billions of dollars. The Congress government has been beleaguered by a plethora of scandals in recent times. As if the Commonwealth Games fiasco was not enough, the 2G scam hit the government below its belt. And this latest ISRO-Devas scandal certainly does not bode well for the reputation of the government. It will be interesting to see how it manages to deal with all these corruption charges going forward.

Despite a pickup in export demand, Indian textile manufacturers have not had too many reasons to smile in the recent months. India currently is the largest exporter of cotton to the global markets. This is after the world's largest cotton producer China experienced a sharp drop in cotton output this year. However due to a strong demand in global markets, especially China, domestic prices of cotton have also shot up in FY11. They have gone up by as much as 57% YoY. Indian textile manufacturers with strong domestic and international brands may not have to worry much. For they will be able to pass on the costs to the customers. However, the smaller and unorganized textile mills are on the verge of facing closure. This comes as a matter of grave concerns given the sector's labour intensive nature. Also the bigger players have nothing to celebrate. The rupee's ascent against the US dollar has made Indian exports uncompetitive. In addition high leverage costs are also weighing on their balance sheets. Thus this is a sector that needs some urgent redress measures in the upcoming Budget.

There is a new war for IT talent being fought. And the battlefield is on engineering college campuses in the United States. With stricter rules in place, costlier visa permits and high unemployment rates in the country, Indian outsourcing majors are now being forced to hire tech graduates from the US. TCS aims to double its foreign workforce to 20,000 nos over the next five years. Infosys and Wipro are expected to see non-Indians comprise 10-15% of their employee base from 5% currently in 3-5 years.

In terms of a cost differential, there is not much of a change, as an Indian employee working in the US would be paid the same salary. Onsite employees are also billed higher to clients. But, there are many challenges on the campus recruitment front. In Indian engineering colleges, these IT majors get to pick the cream of the crowd. Plus, India produces 600,000 engineering graduates every year. However, the pool of students in the US is much smaller. And these IT firms do not really have much brand value on US campuses. While, the Indian Big 3 are making efforts on this front, we believe it will still take a lot more time and money to pay off.

Meanwhile, after a strong opening, the benchmark index has lost initial ground and is trading in the negative territory. The BSE Sensex was trading around 35 points below the dotted line at the time of writing. FMCG heavyweights led by Hindustan Unilever, Nestle, Marico were seen driving a good part of the gains. While most other Asian indices closed in the green today, Europe has also opened on a positive note.

 Today's investing mantra
"The four most expensive words in the English language are, 'This time it's different." – Sir John Templeton

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14 Responses to "2 things to avoid when markets are down"


Feb 18, 2011

Dear I read your 5mts wrap.up any how after finishing trading hours you despatch wrap up in practice index pattern dips swings howwhywhat pulled markets badly written by medias deeply by many witers of the globe.still your write ups can touch fiimutual fundsseller pressurelack of buying interest politicaleconomical bursts in the globecentimental views are twisted by many facts can be spread tO ALL IN BETTER WAY SHORT SELLER/long positions are some folloW IN DAY TRADING?SOME ENTER JUST NEIGHBER BUYSOR SELLS PARTicular stockS ANdFINALLY END up messinG WAY MANY DAYS LOng HOURS I browse mANY COMPANIES ARTICLES THRUOUGH MORE LIGHT OO DAY TRADER IF YOU CAN SUGGEST SOME WEB SITES FOR ME HELP IT BY SENDING TO MY EMAIL


Anupam Garg

Feb 18, 2011

It would b interesting to c the rankings of indian cities. the chosen factors for rankings are quite apt, though i don't understand how 'cities ability 2 mobilise savings' is measured.

but then again, language, food, climate, culture etc r a few of the many other factors which influences the choice of city for an individual.



Feb 18, 2011

Buying when markets are down always help in the long run/ However, for practical purpose I tend to invest all money when the market is going up, leaving no cash when market falls. This is true with respect to the recommendations from brokerage houses including Eq Master. (Nothing wrong in it).
But choice of selling in a fallen market is a bad option.



Feb 18, 2011

These are simple but 2 most important things to keep in mind when markets are down. When the price of a particular stock which I own falls in the market, I try finding if any news has broken out to figure out if anything has changed with the company. Else I buy more if I have investible funds.

As a far as selling on panic, it is not bad idea to sell some of the stocks during market falls as long as there are better quality 'buy's available. Otherwise stay put or buy more.

As Waren Buffet says, the market behaviour throws opportinities to buy (sell) stocks at the right price.

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