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On October 29, India became the 20th nation to have seen its stock market benchmark touch the 20,000-point
milestone. The BSE Sensex breached the 20k level in intra-day trade for the first time in its over two-decade history.
Shiv Kumar looks at the amazing, unprecedented bull run and how many made huge money from stocks
For an ordinary clerk in a government organisation, Ronaldo Fernandes (name changed) goes to work in style. Top-of-the-line formals, spiffy shoes and a shiny new laptop encased in a Hidesign leather bag. He is neither known to be corrupt nor run a business on the side. All it took Fernandes was a demat account with a prominent brokerage six years ago and rudimentary knowledge about the share market to rake in the moolah. Fernandes reaches office nearly an hour early so that he is ready and waiting when the markets open a little before 10 am. "I have a lot of friends who tip me off on shares that will move and we bet on those stocks," says Fernandes. Tips come from fellow commuters on Mumbai’s local trains, brokerage reports and analysts on television channels. "I have not lost money in the six years I have started trading," says Fernandes. Others would simply call him lucky because the stocks he picked — Blue chips like Reliance Industries and Reliance Petroleum Ltd — have fetched phenomenal returns. Understandably, investors like Fernandes cannot be bothered about terms like value investing or buying shares on the basis of fundamentals. "Everything rises in a bull market. It is only when the tide goes out that we know who has been swimming naked," the dictum attributed to veteran investor Warren Buffet goes for a toss when the Sensex is scaling new highs. Veteran investors who burnt their fingers in the bull run of the 1990s warn that greedy punters could end up losing all their gains in just a few days. "My biggest failure was in the technology bubble where I lost more than 90 per cent of my portfolio because I wanted to get rich too fast. Since then I started reading about the masters of this business like Buffett, Peter Lynch and our own Samir Arora," says investor Basant Maheshwari who runs The Equity Desk, a self-help forum where investors from a cross-section of society come together and share their experiences. Experienced investors warn of "irrational exuberance" which propels investors to buy overheated stocks like Reliance Industries. A sudden fall could make investors see their investments erode in value. "Often panicky investors sell off their holdings at huge losses and exit the market," says Abhay Shrivastava, who runs an online forum for a select class of investors. Smart investors usually accumulate quality stocks when they are down and sell out when the hordes rush in to buy, warns Shrivastava. Most of the investors who are in the market have never seen a prolonged bullish phase. Through much of the 1990s, the bulls were let out only occasionally before being returned to the stifling embrace of the bears. It was only in late 2003 that the bull market really kicked off. Since then, the Sensex has risen from below the 6000 mark to breach the 20,000 barrier. Prominent investors like Rakesh Jhunjhunwala predict that the Sensex could touch 50,000 in another six or seven years. Analysts say the current bull run is backed by excellent performances by the corporates which show no signs of slowing down. The July to September earnings season saw exceptional performance by companies in telecommunications, construction and infrastructure which added more steam to the Sensex. "Companies like Larsen and Toubro, Bharti Airtel and the Reliance are expected to show a good growth in the coming months as well," says Hitendra Jain, a city-based broker. According to him, banking and construction will throw up good numbers in the coming few quarters as well as the country goes on an overdrive to improve its infrastructure. Banking stocks are also expected to do well as Indian banks have to adopt the Basel II norms by 2009 when the country will be opened to foreign banks. A number of private sector banks are gearing up for enhanced competition by fuelling the growth of their businesses aggressively. Other players are being touted as candidates for a takeover. Seasoned investors say the best way to play the stock markets is to look at value stocks, that is stocks with good fundamentals and that which are undervalued by the market. "A systematic investment plan is the best with investors increasing their holdings when the market dips," says Amit Chugani, an investor.
Like other savvy investors Chugani accumulated cash for several weeks in October and purchased his favourite shares when the markets plunged later that month over fears of the participatory note crisis. "By the time the markets recovered three days later, my picks had appreciated 25-30 per cent," says Chugani. Others warn that investors should not panic when the market falls suddenly. "Investing is 50 per cent skill and 50 per cent emotion. Anyone can read a balance sheet or look at the business model to project market caps but the real test is to hold onto good businesses (stocks) when the market falls 25 per cent in five sessions," says Maheshwari. According to him he receives much encouragement from his co-investors in The Equity Desk. "TED helps me build that emotion very well," says Maheshwari. Members of this forum act as a support group and help each other buy fundamentally strong stocks. For example, the price of Dish TV has fallen to below Rs 60 ever since the scrip made it to TED some time ago. But members of this forum are using every dip to increase their holdings of this stock. "It is a two or three year stock that can prove to be a multi-bagger in the long run," writes one of those betting on this scrip. Simultaneously members analyse every move by the company and its promoters threadbare. It goes without saying that contra-investing or betting on out of favour stocks requires enormous confidence since few can watch their holdings fall while every other scrip in the market show fantastic gains. There are others who don’t opt for this strategy but choose to go with the momentum. "Sometimes, you miss things because you’re too focused on "value", writes blogger Deepak Shenoy who dabbles in futures and options. He has now set up his own website which helps investors trade using ‘technicals’ mathematical charts which predict the rise and fall of share prices. But Shenoy who provides detailed accounts of his trading activities appends a statutory warning to those trying to emulate him: "This is my trading update. I don’t mean to recommend any of the above stocks, or even that you try anything like this. Don’t do it because I do it— as I’ve said I can afford to lose a significant amount of the money invested."
Don’t have the time to research and buy shares? Opt for the mutual fund route. Unlike in the early 1990s when the government-run Unit Trust of India was the only mutual fund of any consequence, today the market is dominated by a number of nimble mutual funds. Investors who betted on some of the best performing mutual funds in the country hit a jackpot as the Sensex breached the 20,000 mark. According to Value Research which analyses the performance of mutual funds, the Reliance Growth Fund gave the maximum returns over a five-year period. For instance Rs 1 lakh invested on October 1, 2002 would have resulted in a yield of Rs 14,96,634.65 on October 30, 2007, a compounded return of 71.68 per cent per annum. Risk-averse investors who opted for a Systematic Investment Plan earned lower returns but these were still higher than fixed deposits in banks and other financial institutions. For instance Rs 5000 invested every month in the Magnum Contra Fund promoted by the State Bank of India Mutual Fund would have got the investor Rs 15 lakh over a five year period, a compounded return of 69 per cent returns per year. Since then, mutual fund companies have come up with several thematic funds that give even higher returns. The Diversified Power Sector fund promoted by Reliance Mutual Fund has generated a whopping 127.92 per cent returns in the past one year. The same fund generated returns of 95.92 per cent and 87.46 per cent respectively over a two and three-year time frames. Other dedicated funds that concentrate on banking and infrastructure themes have been spewing out grand returns as well. The Banking Fund from the Benchmark Asset Management Company turned in 62 per cent returns during a one-year period while the Infrastructure Fund from that old warhorse, UTI gave a 71.36 per cent returns during the past 12 months. Not surprisingly investors are opening their pocket books to the fund managers. Reliance Growth manages a whopping Rs 4,617.19 crore while Reliance Diversified Power Sector fund juggles Rs 2,312.30 worth of assets. UTI Infrastructure fund has a relatively modest corpus of Rs 1,417.38 crore. Critics warn that the huge asset base could prove to be a major liability when the market turns bearish. Attempts by the funds to sell off their huge holdings would only hammer down the markets further. So many of these funds have now resorted to huge exit loads so that investors do not rush out to redeem their holdings in the event of the market experiencing a major correction. — S.K.
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