The speculators are back - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
The speculators are back A  A  A
4 MAY 2009

Well, to be honest, they were always around.
It's just that they were busy betting that the markets will decline.
"The BSE-30 Index is poised to get to 6,000", they said.
Some said that 5,000 was a good number for the Index.

We shrugged our shoulders.
We don't know, we said, where the Index will be.
But we could make an argument for the BSE-30 Index to break the 21,000 level by July 2010.
We cannot guarantee it - but we could argue for such a scenario.

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What we do worry about - all the time - are the companies we own in the Quantum Long Term Equity Fund.
Are these companies in good businesses?
Are these companies built on the premise that government officials can be bribed and policy-making changed to extort a profit from the general Indian population?
Are the companies we invest in run by competent managements?
Are they run by honest managements who will give us - as minority and passive shareholders - a fair share of the upside? Or will these "promoter-managers" cheat us and keep the rewards to themselves, their families, and their assorted cronies?

Table 1: The speculators are back!
Companies Price as on April 30, 2009 All time high Low Price of Stock %change from Low % change from High Does Quantum Long Term Equity Fund own the stock? Did Quantum Long Term Equity Fund own this stock in Dec 2007?
Anant Raj 81.7 378.6 39.0 109.4% -78.4% No No
Suzlon Energy 63.1 454.7 33.3 89.4% -86.1% No No
Reliance Capital 524.5 2,860.0 280.9 86.8% -81.7% No No
ICICI Bank 479.2 1,439.9 263.0 82.2% -66.7% No No
Tata Motors 243.8 954.2 136.7 78.4% -74.5% No Yes
Unitech 44.1 538.2 24.8 77.6% -91.8% No No
Pantaloon 189.7 856.6 107.1 77.2% -77.9% No No
DLF 230.3 1,205.6 136.7 68.5% -80.9% No No
Sterlite 410.1 1,104.8 244.5 67.7% -62.9% No No
Reliance Communications 214.8 820.8 132.8 61.8% -73.8% No No
Siemens 308.1 1,035.7 193.1 59.6% -70.3% No No
Reliance Infrastructure 695.2 2,584.2 439.2 58.3% -73.1% No No
Reliance Industries 1,806.3 3,216.3 1,153.4 56.6% -43.8% No No
Tata Steel 238.1 934.8 152.4 56.3% -74.5% Yes Yes
BSE 30 Index 11,403.3 20,873.3 8,160.4 39.7% -45.4% - -
HDFC Bank 1,100.4 1,787.9 798.7 37.8% -38.5% Yes Yes
ONGC 864.8 1,366.1 666.0 29.8% -36.7% Yes Yes
Source: Bloomberg, Quantum Mutual Fund

Well, many of the "hyped-up" stocks are moving again.
Just when you thought it was safe to get back in the water for a swim - look out for the whirlpools!
The magnetic power of greed.
Don't get tempted to gamble your savings on some "hot tips".
Remember the fear and panic when you last took that "hot tip" and saw your portfolio melt with all the heat of that "hot tip"?

Are you a speculator or a long term investor?
Click here, to let us know.

Select your stocks, select your fund manager
But keep investing - in stocks that represent sensible businesses.
Sure, every stock will gyrate and move in bull and bear markets - but only the decent ones will make you money over cycles, over the long haul.

Investing is not easy; speculation is.
Maybe that is because investors worry about the basic things and do a lot of spade work before they commit their hard-earned money to an investment idea.

Speculators, change their views in an instant.
They sniff the air to see which side the wind is blowing - and then spread their wings and glide.
Of course, sometimes the wind dies down - or, worse, changes direction without any warning - and they are left helplessly flapping trying to cover their losses with bigger bets.

Don’t get me wrong - there must be a speculator, a trend-better out there with a great formula that has worked.
With a proven track record across various cycles.
If we found that person, we would partner him and showcase his product to you.
Yes, we would.

In the meantime, we see the markets surge.
The speculators who were "short" and felt that the markets would decline have possibly turned buyer and wish to go "long".

We can still make a case for the BSE-30 Index to breach the 21,000 level by July 2010.
But we cannot make a case for some of the craziness and speculative stocks to get back to their previous all-time highs.

The 5 Minute Wrap-Up will continue to monitor the daily news and tell you what is likely to have a long-term impact on your portfolio, and what is "noise". Sign up here to read the most recent 5 Minute Wrap-Up.

Stay with the asset allocation suggested (see Table 2 below) - and enjoy the return of some rationality to what has been an excessively beaten down market.

Table 2: Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

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Note: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company Pvt Ltd.. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited.

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3 Responses to "The speculators are back"

ajit dayal

May 17, 2009

No, Mr. Reddy, I am serious when I speak of an Index heading back to 21,000 by June/July 2010. There are a few milestones...election results, budget in July, monsoons, global money flows to India...but it is a real possibility. I actually made this forecast in October 2008, if i recall correctly - I don''t normally predict Index levels but everyone seems so depressed, it made sense to think of what could happen to counter the "equities is dead" theme.
Mr. Iyer, there was no real selection process in the list of stocks - but it represented those that had d one very wellwere the fancied stocks in the previ ous cycle. I don''t ignore QTSF but that is a tax sav ing fund so there is a limit as to how much you can contribute every year hence a % asset allocation fai ls. And QNifty is a proxy for the Index so yes you can invest in that, but I personally don''t like many of the Index stocks, so my investment is in the "norm al" Quantum Long Term Equity Fund. Tha


gopikrishna reddy

May 4, 2009

Ajit, are you sarcasticironic when you say the BSE-30 Index to break the 21000 level by July 2010. If not, you are expecting, if not betting of the event occurrence in 15 months (which is short term). Usually you don't try to predict the short term momentum or levels of market, right? I am a bit confused. Please clarify, if possible.


Param Iyer

May 4, 2009

Thanks for the timely article - just to help keep our sanity when the media is again on the verge off going crazy... brJust curious, what was the basis of arrivi ng at the list of companies in Table 1? Is that a random setbased on certain criteri a?
Secondly, your asset allocation se ems to ignore the other 2 funds (QTSF & QNIFTY ). Any suggested allocation to these as w ell??? Keep writ ing... Regards

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