Transcript of the Podcast
Hi this is your editor Arjun Parthasarathy speaking. The Friday podcast is a value add feature for the followers of Investors are Idiots.com. The brief podcast will select one topic for analysis and will be released every Friday.
This week’s topic is on “Do not be too adventurous in this market”
The outlook for equities may be positive due to various reasons including central bank liquidity, bottoming out of global growth, lower interest rate regime in the country and selective reforms by the government. The Sensex at 20,000 levels is at over two year highs and is expected to rise going forward. However even if you are positive on the market you should not be too adventurous in your stock selection.
The recent fall in stocks such as HDIL and Opto Circuits that fell 37% and 22% week on week as of week ended 25th January 2013 is a strong reminder of the issues plaguing some companies. HDIL promoters sold their stake to fund land purchase and markets took it as of sign of the company finding it difficult to service its heavy debt. Opto Circuits is facing corporate governance issues leading to investors exiting the stock.
There are many stocks such as HDIL and Opto Circuits in the market and a positive market outlook is ripe for speculators or even promoters to ramp up stock prices to exit. Unsuspecting investors will be left holding worthless paper if they are not careful.
The Indian economy is undergoing changes and past excesses have brought about these changes. Many sectors are facing issues of debt, lack of demand and policy constraints. Such sectors include Real Estate, Infrastructure and Telecom. The auto sector in India is facing demand slowdown with the industry body expecting almost zero per cent growth for this fiscal. The weak INR, that is down over 20% over the last two yeas have impacted companies that have USD denominated debt. The problems faced by these sectors and companies will not go away soon even if equity markets are trending up.
It is a time to be careful on the stocks that you choose to buy. In fact you should be over cautious on stocks given the uncertainty surrounding many sectors and stocks. It is a time to look first at balance sheet strength, then at valuations and then at growth. You should not mind short term underperformance for long term gains. More importantly you would want to have peace of mind with your stock portfolio rather than worrying about what adverse news that could hit your stock.
Thank you for listening in. Have a good weekend.