Guidelines for investors
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Sukumar.N
Oct 20, 2008, 3:14:00 AM10/20/08
to Kences1
Guidelines for investors
=================
After all the panic and anxiety in the financial markets, one thing is
clear. The banking sector and depositors will not be allowed to suffer
by governments the world over. Sure, the shareholders, CEOs and senior
management of banks may suffer.
However, the current scenario where people are rushing to take out
money and put it under their mattress is clearly unjustified. Yes,
your money is safe with banks. Even with ICICI Bank. Nothing is going
to happen to your deposits.
Guidelines for investors
=================
At the same time, there is no denying the fact that the world economy
is headed for recessionary times. In such a situation, there is no
direct answer with regard to stock market investing. It would be much
better to take a bottom up stock-by-stock and industry-by-industry
approach to investing. Cyclical and commodity stocks were in a dot com
like frenzy. We could see declining profits and stock prices in such
stocks despite the steep fall already in place.
To illustrate, the profits of Sesa Goa have gone up around 200 times
in eight years from 2000 to 2008 on a volume growth of just about
three times. These profits could tumble down equally fast were iron
ore prices to ease rapidly. The Baltic Freight Index has fallen by
more than 85% from peak. The profitability of a lot of companies in
the commodity and cyclical space will see a severe decline.
Guidelines for investors
=================
Not every company, which has seen its stock price decline is headed
for difficult times. The traditional defensives like FMCG and
pharmaceutical shares, select banks with good credit quality,
utilities (like city gas distribution), defence-related PSUs, etc,
would make good purchases at current market prices.
A lot of consumers of commodities will benefit from the fall in
commodity prices. For example two-wheeler companies/ancillaries will
see margin expansions as well as price cuts for the end product on
account of weak commodity prices. Companies like Castrol or Paper
Products, which have raw materials linked to
Guidelines for investors
=================
Inflation will come down sooner rather than later, leading to easing
of the interest rates.
The selling in a lot of IT stocks seems to have been overdone,
especially looking at the declining exchange rate. All in all, a good
time for value-oriented buying of good quality businesses. Time to
stay away from businesses with weak fundamentals.
N.Sukumar
Research Analyst
www.kences1.blogspot.com
=================
After all the panic and anxiety in the financial markets, one thing is
clear. The banking sector and depositors will not be allowed to suffer
by governments the world over. Sure, the shareholders, CEOs and senior
management of banks may suffer.
However, the current scenario where people are rushing to take out
money and put it under their mattress is clearly unjustified. Yes,
your money is safe with banks. Even with ICICI Bank. Nothing is going
to happen to your deposits.
Guidelines for investors
=================
At the same time, there is no denying the fact that the world economy
is headed for recessionary times. In such a situation, there is no
direct answer with regard to stock market investing. It would be much
better to take a bottom up stock-by-stock and industry-by-industry
approach to investing. Cyclical and commodity stocks were in a dot com
like frenzy. We could see declining profits and stock prices in such
stocks despite the steep fall already in place.
To illustrate, the profits of Sesa Goa have gone up around 200 times
in eight years from 2000 to 2008 on a volume growth of just about
three times. These profits could tumble down equally fast were iron
ore prices to ease rapidly. The Baltic Freight Index has fallen by
more than 85% from peak. The profitability of a lot of companies in
the commodity and cyclical space will see a severe decline.
Guidelines for investors
=================
Not every company, which has seen its stock price decline is headed
for difficult times. The traditional defensives like FMCG and
pharmaceutical shares, select banks with good credit quality,
utilities (like city gas distribution), defence-related PSUs, etc,
would make good purchases at current market prices.
A lot of consumers of commodities will benefit from the fall in
commodity prices. For example two-wheeler companies/ancillaries will
see margin expansions as well as price cuts for the end product on
account of weak commodity prices. Companies like Castrol or Paper
Products, which have raw materials linked to
Guidelines for investors
=================
Inflation will come down sooner rather than later, leading to easing
of the interest rates.
The selling in a lot of IT stocks seems to have been overdone,
especially looking at the declining exchange rate. All in all, a good
time for value-oriented buying of good quality businesses. Time to
stay away from businesses with weak fundamentals.
N.Sukumar
Research Analyst
www.kences1.blogspot.com
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