It has been sometime since I wrote. The stock markets were for most of 2017 fully in control of the bulls or optimists. As I write this Nifty is not only at an all time high of 10500 but also is almost touching a high PE multiple of 27. That’s expensive by any standards when your median is close to 17.5 and mode is at 14.5 . It is in stratosphere. But I may be made to look like a fool in another 4 trading sessions when sensex crosses 35000. The markets are discounting the earnings of FY 2019 also. And if Gujarat elections were somthing to go by, 2019 may not be a cakewalk for the BJP.
As investors some of you may have had a great run. A rising tide takes up all boats. And stockmarkets this year have given upwards of 40% returns so one did not have to bang his or her head. Just buy the sensex and sit tight.
What will happen next year? I do not know. But I do know that two stocks are giving a decent arbitrage opportunity today. Swaraj Engines and Eclerx Services. They have announced a buyback at Rs 2400 and Rs 2000 respectively. What’s the play?
- Buy Rs1.99 Lakhs worth of each stock at current price. Swaraj Engines at Rs2000 and Eclerx at Rs 1500. Beyond 2 Lakhs you come in HNI category. .
- Wait for record date to be announced by the company for calculating the ratio of shares which will be accepted, generally the ratio is between 50-70% i.e to say if you have bought 100 shares of Swaraj Engines, the company will accept 60 shares at Rs2400 to be sold back to them. And balance 40 you may sell at market prices. Or hold on for the long term. So you tend to make 60×400=Rs 24000 worth of gains in 3 months or less on an investment of Rs 2 Lakhs. A 12% return. Even with a short term capital gains of 15% ie Rs3600 One makes Rs 20400 or a return of 10.2% post tax in 3 months. It is an annualised return of 47.48%
- The return is with zero downside risk. And in case the company accepts more than 60 shares, your gains increase further.
I look for such lopsided opportunities which the market offers from time to time. One always does not have to remain invested. As I always say, hold 10-20% of your portfolio in cash for opportunities which are fleeting. This is one such time.
My Picks at current prices for 2018 and beyond are:-
WONDERLA HOLIDAYS
LUPIN LABORATORIES
AUROBINDO PHARMA
GATEWAY DISTRIPARK & CONCOR
and THOMAS COOK
Stay Safe, Stay partially in Cash. This party will eventually get over just like all of them do. Wait for that for investing your bulk.
MERRY CHRISTMAS AND A HAPPY NEW YEAR