Identify and tag on to scrips which are oversold and underpriced
K Seshadri
The Sensex has lost its steam. This feeling surfaces despite the fact that last Friday, the Sensex managed to cross the 3711, which proved to be a strong barrier for over 4 days.That the investors are not making any more gain can be gleaned from the following statistics. On Friday, the sensex closed at 3720. But it is difficult to feel bullish about the market at this juncture. Remember 11th of December? That was the day the market reversed from its bottom. It posted a low of 3247, but closed 82 points higher at 3247. How much gain has one made, assuming that one invested on the closing price of that day. The closing price and the low, which was lower by 82 points is releavant, for you need proof that the market has reversed. Since then, the Sensex has made a gain of 11.74 per cent. But gains under such circumstances come pretty quickly. Much of that gain came in by 23 December itself, when the Sensex had already pocketed 9.37 per cent. The rise after this date has been slow and pondering! This
pattern applies even more to several pivotals. Take Reliance Industries for example. The initial quick gain was 4.35 per cent. Thereafter, it scored another 5 per cent, by December 29. Not much gain thereafter. As of today, it has gained 9.34 per cent. But you might as well have sold off your scrip by December 29, without having to keep wondering if it is worth holding on any further. The other heavy weight, ITC has a similar story to tell. It gained 10.36 per cent by December 23. The gain thereafter to one who has held uptill now is nil. What does this show? It shows that if you look at the market dispassionately and not with the colouring of your hopes (!), the market is simply not going up. And even if it goes up next week, you can only expect micro improvements over the gains already made. On the other hand, if the fatigue lasts longer, you could lose if the market begins to slide. To be perspective, the market needs much more infusion of funds for it to go up further strongly. Only inflow of FII
funds could do that. And quite honestly, given the political background, would the FIIs not wait for a reaction, too? In any case, there are lessons to be learnt from the market's behaviour of the last fortnight. There are scrips which have steadily gone up. State Bank has got under its belt a whopping 19.64 per cent. It went up in a firm fashion. Tisco is another story with a 17.8 per cent gain. And if you want a bench mark look at HLL. The gain is 13.67 per cent. But you might have as well booked your profit at 14.68 per cent by December 22! So the secret is to identify and tag on to scrips, which have become oversold and underpriced. The gain then could be handsome, as seen in BSES with 24.3 per cent, IDBI with 15.12 per cent or ICICI with 18.94 per cent. On the other hand, if you end up buying over valued scrips or those scrips that are suffering from fatigue, the gains are nominal. For instance, BHEL returned just 7.10 per cent. But you could have also got out with a gain of 9.91 per cent by
December 22. Mahindra & Mahindra, IPCL and SAIL also actually went down, before they came up. A look back should make you wise to the benefits of deliberation and waiting. Except for the possible inflow of FII funds, there is nothing much to keep the Sensex moving up further. On the other hand, if stock prices fail to move up further next week, tired bulls could start unloading. The Sonia factor too has robbed any over enthusiasm about BJP that could have prodded the market further. The path before you is clear. Operators would have taken position by February middle, in anticipation of a post election rally. That leaves a lot of room from now. It is difficult to see how the market could be sustained in the intervening period. Surely, long term bets like Tisco, SAIL, HLL, SBI and a few others could hold on, may be with a little of the cream chipped off. On the other hand even in these counters, investors might find it frustrating holding on to the scrip with prices not moving up. Reports of a
slight improvement in industrial production is filtering through, but not enough to excite the market. Investors will benefit by waiting and watching. Agreed on a longer term span, even the current prices seem attractive. But right now, there are not enough drivers to take the market up further. So why not wait to pick up even your long term bets? On the other hand, if you buy in now you should be prepared for nail biting times. It is not impossible for values to move down. Ideally it looks like a case for booking your profits and watch thereafter. Next week could be critical. It might give an indication of which way the prices are headed.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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