Samvat 2065: A Prognosis

The official Indian Calender goes by the Vikrami era: Currently we are in Samvat 2065 which kicked off on 7th April 2008. The Vikram era or Vikrami Samvat originated in 57 B.C. and the date marked the victory of King Vikramaditya over the Sakas who had invaded Ujjain. The official Indian Calender or the Vikrami Samvat is based on both the sun and the moon, it uses a solar year- divided into 12 lunar months . For stock market participants Diwali day marks the start of a new era, when they start their accounting year afresh. So it is customary to take stock of your investments from Diwali to Diwali every year.

Let us try to analyse what is in store for Indian stock markets for Samvat 2065. Since stock markets do not move according to individuals but according to the combined wisdom/acts of a large number of individuals, I am giving you a perspective on what different people feel about the markets in Samvat 2065, to enable you to understand and take informed decisions for the safety of your investment portfolio. I do not intend to give "My top picks", but to guide you to be able to pick your own Top picks.

Samvat 2065 is kicking off on Dalal Street on a positive note: I say a positive note because the worst is behind us, Sensex has made a new 3 year low of 7697 on 27th October 2008 (corresponding Nifty level is 2252). This gives us enough headroom for an upside till next Diwali. Let us consider 3 different views on the movement of the stock prices for the next one year:

• Technical view: As I am not a qualified technical analyst, the views expressed here are of technical analysts on various media channels. Technical analysis should always be taken with a pinch of salt because it takes a short term view on the markets. Most technical analysts are of the view that the worst is not over, the sensex can dip to levels of around 6000 (corresponding Nifty level is 1600) before making a rebound, a scary picture indeed! But since the markets are oversold a sharp recovery of 25-30% in the immediate future cannot be ruled out.
• Fundamental Analysis: This allows us to identify potential Blue chips based on certain parameters: 1. Earning Per Share(EPS) is the most important criteria to judge the intrinsic worth of a share. Growth companies show a consistent upward trend in their EPS. 2. The price that an investor is ready to pay for a share is the PE Multiple, which is measured as the current price of the share divided by its EPS. Since Debt or fixed income securities are giving a return of around 10% on your investment, a PE ratio should be higher than 10 for equities because of their high earning potential in the long run. The current PE of the sensex at 8500 levels is exactly 10 (on the basis of 2007-08 earnings). So fundamentally markets should not dip below these levels, but the markets do not always behave rationally. In January 2008 this ratio was as high as 28, however the average PE ratio of Indian markets has been in the range of 14-16. According to this analysis the fair value of sensex at the time of next Diwali should be between 13000-15000. However, all stocks in the sensex do not have the same PE ratio, which varies from sector to sector. A few blue chip stocks with a PE of below 10 at current prices are: Tata Steel(2.1), Hindalco(1.8), ONGC (3.5), DLF (4.5), Maruti Suzuki (6.8), RCom (7.2), RIL (7.4). To buy a particular low PE stock will depend upon its future growth potential because markets always discount the future. 3. Cash Ratio: Companies with a high cash in their books, will be able to tide over the liquidity crises in a much better way. On this basis real estate companies would be in more trouble in a crunch situation. Even those companies that have gone for acquisitions through high cost debt are vulnerable: eg. Tata motors, Tata steel, Hindalco.
• Astrological View: As I am not a qualified astrologer, the views expressed here are of prominent astrologers like Bejan Daruwalla. Stock indeces, it is beleived, have some correlation with planetary configurations. The month of October 2008 was volatile because of the confluence of Saturn and Jupiter, which are now moving in a much favourable position from November 3, 2008. December 2008 will again be a volatile month when US markets are expected to plunge to new lows. The situation will start taking a better turn from February 2009, and June- July 2009 will mark the return of the bull run.

Based on the combination of above factors it appears that Samvat 2065 will bring a lot of cheer to the stock markets in the latter half. Historically the bear run takes around 18 months to complete, so June- July 2009 meets the target for the start of the new bull run. In the meantime, volatility would be high so keep booking your profits at regular intervals to keep your liquidity intact, which can be used for buying blue chips when prices are down. Happy investing in the Samvat year 2065.