Friday, June 26, 2009

Budget Rally or New Bull Run?


Markets have started rallying again. Analysts have started speculating about the beginning of a new bull run. Pessimism has been pushed aside and optimism has again taken a front seat. Don't get unnecessarily sucked in at higher levels on the back of speculative and liquidity based rally before Budget to be announced on July 06 (Rail Budget on July 03). It is quite possible that the rally may last a bit longer even post-budget if the announcements are even trifle better than market expectations. Another reason that the rally may last a bit longer could be that markets would like to wait for India Inc's quarterly results for more clarity on earnings which would be announced in the month of July.

But, how much more legs can this linear rally have? Remember, the ongoing rally is largely liquidity led which can dry up anytime. When sentiment turns, the same analysts which are forking out psoitivity and optimism will tweak their views depending upon the situation.

I would say sell 10-20% of your portfolio at higher levels. Sell at higher levels on every rallying day in small quantities. Especially, square-up at least 70% of your Trading positions on or before July 06 to be on a safer side.


Kalindee Rail and Educomp Solutions:

Both Kalindee Rail and Educomp were in hibernation mode in today's market after a steep rally in last few sessions. But, they'll again start rallying before their respective 'B' day. Railway Budget is to be announced on July 03. So, Traders should exit and book profits to the extent of 70% in Kalindee until one day before Rail Budget and remaining they can still consider holding until July 06. Investors can still hold Kalindee with long-term perspective or they can as well sell 20-30% holding and stay invested in remaining. The entry call for Kalindee Rail was given at Rs.135/- as both for Trading and Investment perspective.

Sell 70-80% of your holding in Educomp stock from today to until a session before Budget. You can carry on with 20-30% of this Education counter for post-budget rally, if any. Government can no longer leave Education spending and reforms at bay. However, booking gains is must, do not remain stuck with trading calls. This stock may reach dizzying heights even from current levels of Rs.3500/- in a matter of next few sessions, more aggressively as we approach July 06.

In my posting dated June 02,
Time to Re-think Strategy, I had recommended readers to exit part positions in expensive large-cap valuations and remain in cash or shift to Defensive counters like Dabur, Cipla, ITC, etc. Cipla has appreciated 20% since then and Dabur is showing around 10% gains from that day. On the other hand, heavy weight RIL is down 10% from the day of recommendation. The recommendation was only for part-liquidation or shifting strategy and not whole holding. L&T and BHEL are almost at same levels since then, but now with a positive bias.


Which Stocks shall lead before Budget:

These are not Trading/Investment calls. The time to take speculative position before budget is a bit behind us. Though, it may prove worthy to hold these stocks for next few days if you already hold them at lower levels. The below mentioned list is just a summary/guide as to which all stocks may find favour in next 10 sessions based on speculation and drama before Budget announcement:

1) IDFC
2) BHEL/L&T
3) REL/IVRCL/HCC

4) PFC/REC/LIC Hsg Fin.
5) Educomp/Everonn/Aptech/NIIT Ltd.
6) Kalindee/Titagarh Wagons
7) Torrnet Power
8) Rallis India

9) IOC/HPCL
10) SBI


Some erstwhile trading favourites based on Budget theme like Alok Industries, Bombay Dyeing, NMDC, MMTC, Coromendal Fertlisers, etc. have lost momentum in very near-term. It remains to be seen whether some of these stock can regain their lost sheen before the 'B' day.

NMDC sought support around its crucial support levels of Rs.360/- as discussed in the 'Comments' section by me, but the stock has still not picked up the momentum from there. The stock needs to cross Rs.395-405 zone to pick any kind of further momentum. Whereas MMTC needs to cross Rs.33500-35500 levels for signs of futher optimism in the counter. Textile favourite Alok Industries needs to cross Rs.24.50-26.50 for any fresh upside rally.


Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

16 comments:

Antriksh Patel said...

Hi Viral,

Can we have the list of stocks that can double from current valuations in a year's time?

Regards,

Antriksh Patel

Viral Rajnikant Dholakia said...

Dear Antriksh,

It would be difficult to predict which stock will double-up in a year's time.

But, what would be more simpler to speculate is which all stocks will double up from current levels when the Sensex journeys from 15000 to 20000 levels in future. Most of such opportunities may be found in Mid-cap stocks.

We can include some of the Infrastructure stocks like Punj Lloyd, Patel Engineering & HCC. We can also include some Real-estate stocks like DLF, I.B.Realestate ad HDIL. We can also contemplate Financial Technologies in the list for double bonanza. Thermax from Engineeing space. R.Capital from Non-banking Finance space. Kalindee Rail can as well double up on the back of robust Railway spending. Videocon could easily more than double up. Gems and Jewellery major Gitanali Gems could as well give 100% returns during the tenure.

The logic behind the doubling up of some of these stocks from Sensex journey from 15000 to 20000 is that during such times of market exuberance, the 'Valuation' methodologies may not be same as it was during the pessimistic times of Sensex journey from 8000 to 15000.

During Sensex 8000 to 15000, when we're emerging out of the crisis, the valuation are based on basic techniques like current earnings, balance sheet restructuring, debt-equity ratio, etc. While in euphoric times, methodologies like 'Forward Earning', 'Far-away Future Prospects', 'Value Unlocking' among others; come into use to support higher valuations. And, during such times liquidity plays a big role in supporting bull run valuations.


If we move a bit forward to say Sensex 23000-24000 levels, some other stocks which may double up with a bit of time lag (as compared to stocks in the above list) could be R.Power, PFC, LIC Hsg, Educomp, IDFC and IVRCL.

The above list is just a summary and I may have missed many invincibles. But, remember... as of now its crystal gazing when we speak about journey ahead as steep as Life highs for Sensex and Nifty.

jamesvaikom said...

Sir,
You are right that we should not invest or trade due to liquidity. We don't know when big players will sell stocks and sit on cash. We should trade or invest according to fundamentals or technicals and not according to liquidity.

Antriksh Patel said...

Thanks Viral

Mohit said...

Excellent reply Bulls,

Hats off I cannot imagine how are you able to answer such diffcult question on stocks which can double in 1 year ?

Thanks for your guidance to new investors like us.

one question on rising stocks like educomp- this stocks are rising at ricket speed will they fall with same speed after budget because fundamentally thr valuations seems to obe too high. About Infra stocks I do not have any major holdings as if now so when do you think a long term investor with a view of 3-5 yrs can enter in market.

Viral Rajnikant Dholakia said...

Dear Mohit,

Addressing your first query on high valuation stocks like Educomp, as to whether they will fall as hardly as they went up?

I feel, this stock is unlikely to fall as hardly as it went up. But, definitely the downside risk is more engraved in it if markets turn unsupportive.

After Budget, it shall not tank as has been made out from its steep rise. But, after budget it will turn into 'Market Performer' rather than an 'Out Performer'. However, if Education reform indeed turns out to be positive for the stock, the under-performance could be completely ruled out atleast for a month or so.

But, if the news in the education sector is largely Neutral, the stock will remain a market performer, meaning it will go down along with markets and may be a bit more steeply than anticipated; but nothing to the extent of being Worrying.

Pls Note: If you have bought the stock on the blog's recommendation as a Trading Idea, the objective should be to book majority gains until 3rd July (last trading session before Union Budget) & take risk for remaining, say 20%, for post-Budget rally, if any.

Coming to your second and final query as to when to Buy Infrastructure stocks... You can start Accumulating Infra stocks when a new intermediate downtrend starts below Nifty 4000-4200 levels.

Nifty 4000-4200 levels to be only the 'Starting Point' to accumulate good Infrastructure stocks. But, more aggressive buying to be done when Nifty reaches around 3400-3600 from long-term perspective.

Whether these levels are reached or not, I can not speculate. But, this should ideally be the strategy if you wish to buy for long-term.

Alternatively, if you can afford to buy for long-term with minute SL (to be on a safer side), you can buy even now, but will have to EXIT them if Nifty breaches 4000 on downside. In that case, a loss of 20% may have to be beared as stop loss strategy if you wish to buy now.

DARK KNIGHT ABHAY said...

HI viral

I read somewhere that applying for PSU IPO will give some tax exemption..?

Is It true..?

IF yes will it be safe to apply for these IPO 's at such high valuations.?

R their are companies for which one can apply for Short TErm TRADING. as well as LOnG term IF priced right...?


THANKS

ABHAY

Viral Rajnikant Dholakia said...

Dear Abhay,

There is no such rule that states applying for an IPO of a PSU company entitles you for any type of tax exemption.

If any IPO is priced at attractive and reasonable valuations, you can apply for it irrespective of market levels.

Anonymous said...

Thanks for your great call

their are strong rumors in market that Educomp is going to announce a bonus and split shortly with the results.

I would like to know what are your views one can do in this situation do you think that once enter the stock at CMP to get benifited from bonus. please explain what would be =ve and -ve to enter this stock considering the bonus is announced.

Mohit said...

thanks for your reply bulls

khalid said...

Dear Viral
Your answers are so descriptive and informative that hats off to you.
Your knowledge is so deep, I really impresed.
Thanks for sharing

Viral Rajnikant Dholakia said...

Dear Anonymous,

Bonus or no bonus - I would not like to recommend entry in Educomp at these levels.

The stock has appreciated sharply in last 1 month. If you wish, you can take a hold on this stock, when a fresh intermediate trend down trend kicks-off below Nifty 4000 levels.

Well again, I am not sure whether Nifty sub-4000 levels are also possible in near future or not. But, it is better to be safe now rather than sorry later.

(KHALID, thanks for you appreciating comments.)

DARK KNIGHT ABHAY said...

THANKS A LOT GR8 BULLS FOR D REPLY...


THAKNS CONGRATS FOR THE GR8 STOCK CALL.,,..

GIVING A CALL IN SUCH UNCERTAIN TIMES WAS RISKY..BUT U STILL HAD THE COURAGE FOR IT..AND U SUCCEDED..
THATS THE REASON WE CALL U THE GR8 BULLS....

YOUR DEEP KNOWLEDGE,EXPERINCE,SIMPLICATION OF STRATERGY HAS HELPED NEW INVESTORS LIKE ME AND OTHERS A LOT ...


REGARDS

ABHAY

Antriksh Patel said...

hi Viral,

I have a long term view on L&T. Should I sell or hold them? My Avg cost is 950.

Thanks

Viral Rajnikant Dholakia said...

Dear Antriksh,

Over here, I can recommend you 3 options at your disposal.

1) Since you have long-term view, hold on to the stock without looking at market volatility.

2) Sell 30% of the stock held around current levels & hold remaining quantity. Also, you can buy back the 30% lot at lower levels, when a new intermediate down trend starts.

3) Co-relate Nifty with your long-term holding in L&T. Sell and Book Profits to the extent of 30% of L&T stock held- if Nifty breaches 4150-4200 zone, which is an important support zone. Accumulate the quantity sold in 2 parts around Nifty 3800-3600 zone.

Antriksh Patel said...

Thnks Viral,

Waiting eagerly for ur article post-budget.

Regards,

Antriksh Patel