Too Good to Be True...!!!

I'm sure you have heard the expression, ‘If something sounds too good to be true, it probably is.’ Well, in the investment world, I say, ‘If something sounds too good to be true, it definitely is.

After months of pain, miseries and cries for the Indian markets, here comes the best panacea: UPA in power without LEFT. This all seems so very good as if we have entered into a fairy tale land and the whole world has changed. The Indian markets became the only market in the world to rise more than 20% in a day and hey we also outperformed NYSE yesterday in terms of total turnover for a day. (and Udyan Kisses his laptop- Amazing Journalism)

You must be wondering that after saying all this I would say that this is all crap and markets will fall again as I have said earlier and have being proven incorrect on some occasions. Then you must be correct to some extent.

I am also very much in favour of this idea that UPA can take India out of economic crisis, Mr. Singh is an amazing economist (most learned in the country) and his privatization and other reforms will give government the required funds to pursue reforms and will lead to a stable Indian economy. But from here I change my views. He is an economist, but surely not a magician out of Harry Porter's book that he would wave his magic wand and the crisis vanishes.

Even the best of the policies takes time to take effect, and this sudden euphoria will only leave a more sick retail investors class (read my earlier post Medicine for Markets). Its time to be realistic and start picking good stocks for long term investing rather than joining this bandwagon and chasing those highly overpriced large caps. The worst may not be over but the speed at which we were reaching there have definitely reduced. For FY10 the average EPS of index companies is expected to grow by not more than 10-15% and the indices themselves have grown by over 60% in 3 months. So a correction is definitely round the corner and its the time to build the portfolio.

Current Nifty P/E has come very close to those bull market levels and there is a buzz that "BUY or otherwise You will be left out". I believe its better to be left out from buying those hefty large caps. Focus should be on good mid-caps/small caps whose earnings have not collapsed as much as their P/E has collapsed within last one year and are fundamentally strong (low debt and good operating cash flow).

Some on which I am working presently are : Prism Cement, Temptation Foods, Sonata Software, (more will come.) Would be great if you all can also add some on the list:

HAPPY INVESTING.