I have not written my blog for the last few months for two reasons:-
(a) A whole lot of wise people are tweeting, and re tweeting the lessons of Munger and Buffet. A lot of people are also writing their own Memos . If not all of them, at least some of them are a treasure trove of wisdom.
(b) The markets were everyday hitting new highs. I felt that we were in a DO NOT BUY ANYTHING zone.
But three events happened in last three days which tell me that the fall in the stock markets should not be too far.
(a) USA started the fall of Turkish Lira. This could lead to currencies in a turmoil in emerging markets.
(b) Rupee touches 70 to a dollar. Likely to fall further.
(c) Trade deficit for July is at $18 billion. If it remains at this level, which it is likely to remain as the Rupee has depreciated substantially, then our current account deficit will be around 3% of GDP which is not a good sign for the economy.
The next 20 sesssions of the markets are therefore likely to dictate the directions of the markets. Don’t be surprised if the markets further rally in India by about 5-8% before they start falling. It will also be a test of the hypothesis which a lot of my friends have been quick in postulating that there is so much money coming into Mutual Funds through SIPs (Rupee Cost Averaging System) that the markets will not fall more than 5%.
I think this is all baloney. Peddled by Mutual Fund Houses and their distributors. USA has a huge penetration of equity and Mutual Fund culture and there are enough investors in USA taking the SIP route. But those markets also fall and fall badly. So, India’s love with Mutual Funds is not a novel theme. It has been played out. The Mutual Fund industry in India also received tail winds due to the choking of Real Estate Sector by the BJP government. The black money temporarily went out of circulation and real estate deals dried up. Real Estate has given negative returns in last 5 years. Due to all of this investors diverted money into equity.
For a value investor,Indian Real Estate at this point looks promising. There is an oversupply and houses available for Rs 1 Cr in 2013 are available for Rs 70 Lakhs or less. If you want to purchase a house to live in, it may be a good time.
To get back to our subject. Keep your war chests ready. Stocks like Balkrishna Industries — a unique model of capturing the oversize tyre market, Mahanagar Gas Ltd — the monopoly in Mumbai-Thane in CNG. Lupin Labs — the oncology generic drug maker under US FDA issues. Swaraj Engines– Cash rich, debt free business from the House of Mahindras , Godrej Agrovet and HDFC Life look like good buys if they further correct by 10% from present levels.
Happy Independence Day to all readers. Let us take a pledge to follow lane driving and all traffic rules in the coming year.
PS: India loses 500 lives daily in road accidents. They are preventable to some extent.