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Sunday, February 10, 2008

Reliance Power IPO Listing : The Acid Test

The younger of the Ambani Bros. will ring the BSE bell tomorrow morning. But for whom the bell tolls? That is the big question. If the bears are able to hammer the price below or even close to the issue price then the bell will toll for the market. But I don't think that will happen. Even though the grey market premium, which started at 450-500 rupees when the issue had opened for subscription, has almost diminished to zero, I expect the stock to touch 700 at some point in time during the day tomorrow.

Keeping aside the Reliance Power listing, the markets are still rattled by the recession in the US. The US market is pulling down the whole world's markets with it. But that said, the Indian markets are still cushioned by the robust domestic growth and should perform better than the rest of the world over a one year period. The budget is also round the corner and a pre-budget rally is also expected. Such crashes, as the one we saw on Black Monday, can be expected to happen at least once a year and present a good opportunity to cherry pick at lower levels. Even at the beginning of the year I had predicted a big correction around the end of January, which came two weeks earlier than expected.

So what should be the strategy of a prudent investor now? Firstly, I would use any rally in the market fancied stocks which are quoting at PE ratios of anything between 50 - 100 to exit those stocks. Such high valuations are not sustainable in the long run. In these uncertain times I would rather play safe and invest in stocks which I would be comfortable holding for a minimum of a one year time frame. If you are a short term or day trader, then these are very difficult times for you. Simply because the volatility is too high. Markets are so choppy right now that you can get chopped both ways if you get it wrong.

Here's hoping that a pre-budget rally starts soon.

Cheers!

19 comments:

bidhan said...

Hi Superstar,

Good to see your new blog I am very very new to share market.
I would like to appreciate your blog and your comments and the input you provide to people like me.
Hope the pre budget rally start as soon as possible.

Regards,
Bidhan

somen said...

Dear Navin bhai,
Today seen the fall of GVK power. Can we buy again the stock?

hardikpndy said...

Hi Superstar,

u said:
"In these uncertain times I would rather play safe and invest in stocks which I would be comfortable holding for a minimum of a one year time frame."

Can u now show us some very good picks u have in mind?

This is the right time to buy, so plz suggest some robust and fundamentally strong stocks which can be held for a year and gives out awesome returns.

Superstar said...

Hi Bidhan,
Welcome to the blog and thanks for your appreciation.

Hi Somen,
I would not advise buying into Power stocks now. You have seen the debacle of the Reliance Power IPO which has listed below its issue price. A lot of froth was generated in the power sector in the run up to the Reliance Power IPO and valuations had gone to crazy level. As already advised in this blog, stay away from stocks trading in the range of 50-100 PE. I will not buy GVK power.

Hi Hardik,
A list of potential winners was given in a blog of mine at the start of this year. You can choose the LOW PE ones from that list. Off hand, I can only think of JK LAKSHMI CEMENT which can be bought with a one year perspective.

Cheers!

Nagendra said...

Hi Superstar,

Please give me your inputs on Alps Ind and Godrej Ind.

One thing that worries me is that in your comments you are suggesting to sell the stocks with PE 50-100 but even with the current price of Godrej its PE is above 80 and at the time when you recommended to buy this stock I hope its PE would be more than 100, please suggest what to do with this and please let me know your comments on Jayaswal Neco at its CMP of 47.15 with PE of 8.7.

cheers
Nags.

experimentor said...

Hello Superstar,

What are your views on the following stocks:

Crompton Greaves
Sanghi Movers

Thanks for all the help.

Superstar said...

Hi Nagendra,
All three (Alps, Jayaswal Neco, Godrej Ind) are holds at current prices for long term investors. My comment about exiting stocks with more than 50 PE was directed towards the abnormally high valuations given to mainly the power utilities stocks in the run up to the Reliance Power Ipo. The case of Godrej Ind is different becaue it holds a vast landbank. The price of that stock reflects more on its NAV rather than PE rating. As already said here earlier, the price of that stock will depend upon the prevailing real estate prices.

Cheers!

mithun said...

HI NavinBhai,

I would like to know if it is ok to buy Reliance power @ 375 levels and also RNRL at 120 levels.
Thanks for all your inputs.

Thanks
Mithun

Nagendra said...

Hi Superstar,

Is it OK to buy the stocks below at CMP or is the markt is about to correct some more and so that I can buy them at much lesser price as the analysts are saying market is heading towards 16K.
The stocks are Agro Dutch and FCS S/W.

Please also do some research on Jindal Photo as its PE(4.95) seems to be very low compared to its peers. Please let us know about this stock for long term based on its management and future of this industry.

cheers
Nags

bidhan said...

Hi Superstar,

Please through some light on (Wanbury Ltd.)
How you see the market from here on?

Regards,
Bidhan

Superstar said...

Hi Mithun,
Why do you want to buy stocks which have no earnings to show today. All they have is promises of earnings four years into the future. RNRL and Reliance Power may or may not rise. But why take a risk when a lot of risk-free or low risk stocks are available in the market. This is not the time to take undue risk.

Hi Nagendra,
You've chosen good stocks. Jindal Photo is also good at current level. We don't know where the bottom of the market is. Right now the market is in the grip of fear. But it makes sense to start buying these stocks with a long term view on every dip. If you have, say, a 100 rupees to invest then you can start putting in 25 bucks at a time.

Hi Bidhan,
Wanbury is trading at attractive valuations. You can buy it with a long term view. Markets may take a little more time to stabilize but one can start buying good value stocks now.

Cheers!

Regenade said...

Hi navin,

Thanks for your earlier suggestins. I bought the following in the fall today:

1. Added to my existing JK Lakshmi @ 128.80

2. Praj Industries at 152
3. TFCI (Tourism Financial) at 31.65

Plz do let me know ur advise on the following.

Also I plan to buy some more tmr or so

1. GMDC below 400
2. GMR infra on or below 150
3. ICICI bank arnd 1000

I am just trying to diversify my battered portfolio a bit.Let me know ur advise

Thanks a lot again,
Supratim

Madhan Srinivasan said...

Hi Superstar ...

Whats the story behind smallcaps ? Will it wait for the stabilty in the market? I mean it will raise only after a substantial rise in sensex/nifty stocks ?

I've incurred a very huge loss and I'm still contemplating !!!!!

somen said...

Dear Navin Bhai,
Whats your view on Burnpur Cement for long term?

Superstar said...

Hi Experimentor,
I think Crompton Greaves is fairly valued at present price. I don't see much upside in medium term.
Ditto with Sanghvi Movers.

Hi regenade,
Out of the three, I would only pick up ICICI Bank on falls.

Hi Madhan,
Small caps were the last to rally in the bull market of last year, if you remember. Typically, they are the last to perform. So whenever a recovery of the market takes place, it can be assumed that the recovery will first take place in large caps, then in midcaps and last in the small caps.

Somen, your query about Burnpur is answered in the other topic.

Cheers!

Bala said...

Superstar

What is your view on Welspun Gujarat? Is it good to hold it for a long term?

Superstar said...

Hi Bala,
I had myself advised a buy on Welspun Gujarat around 3-4 years back at the level of 40 to my clients. Today it has seen highs of 537. I would NOT recommend a buy at current levels as it seems more than fairly valued to me.

Cheers!

Raj said...

Dear Superstar,
Please change the colour. It's very much eye-sore. Kindly consider changing it to blue or some other color please. I've been reading your blogs; but find it un-bearable with the color. Don't treat this as a criticism. Just a suggestion for improvement. Hope most of the readers agree with me.
Thanks in advance,
Rajgopal, Chennai

Superstar said...

Hi Rajgopal,
I hope you are happy with the new color. :)

Cheers!