holdyourthoughts

Today something new has happened. In this Lok Sabha elections, for the first time during my living memory, I have seen a comprehensive defeat of the Left Front in Bengal. Mamata Banerjee has managed to join hands with the Congress and has managed to get 26 seats out of 42. The last time I think that happened was before I was born!! Let's see what the new team does for Bengal and Calcutta. We need to get a lot of development done for Bengal and Calcutta.

I am thinking of building a mid/small cap portfolio of not more than 10 stocks with a part of my monthly investable surplus. The strategy that I have thought of is to have a 70:30 debt:equity ration. So, I will be putting about 30% each month in either a recurring deposit or PPF. The rest of 70% I am planning to break up into two chunks of 40% and 30% each of mid-cap/small-cap stocks and equity mutual fund SIPs respectively. In the equity mutual fund space, I think I will focus more on large cap funds like HDFC Equity, Franklin Templeton Prima Plus and Reliance Vision with an allocation of 10% each. Amongst the stocks that I am currently looking at are: 1. Opto Circuits 2. Sintex Industries 3. Yes Bank 4. Sundaram Transport Finance 5. Bartronics 6. ICSA 7. Everest Kanto Cyclinders 8. Power Finance Corp 9. IDFC 10. Voltamp Transformer 11. Punj Llyod 12. Savita Chemical 13. Pidilite 14. Blue Star 15. Voltas And maybe a couple of cyclicals/special situations like Tata Steel, Tata Motors, ...

Today the market corrected about 2%. And I was overwhelmed with greed and bought Essar Oil from a trading perspective. The trade till now has not gone as per plan. It is down about Rs 6 from a purchase price of Rs 160. I have a stop loss below 152 (yesterday's close) and a target of 170. Let's see how the trade plays out.

Every one seems to be of the opinion that India is going to have a fractured mandate in the elections and the market will correct 10-20% after the results are out. The percentage of the fall is to be determined by the group that comes to power with the maximum fall reserved for a combination of the Left and Mayawati!! I wonder. In my experience markets rarely, if ever, oblige the popular opinion. Will the markets see a steep decline or will it witness a runaway rally? Only time will tell. For you and me, its best we reserve some cash to take care of opportunities that may come tomorrow.

Looks like the Nifty going to take a 100-150 point downward journey from here. There was a fair amount of profit taking at the end of the day with Sensex closing below 12000. For long term investors, it might be a good idea to wait for some more time till the election results are out. There is an event risk to the market associated with the election and for most retail investors it makes sense to watch from the sidelines rather than jump into the whirlpool. For traders, portfolio protection can be bought in the form of Index Put Options.

The near 50% rise from the October lows in the Indian stock market indices (from 8000 to 12000) have started the debate of whether this is the beginning of a new bull market or a bear market sucker rally. Most people have been surprised and caught unprepared for this steep bull rally. I have used this rally to prune my portfolio to a more manageable number of stocks. To be honest, I am as confused as the next guy on whether this is the beginning of a new bull market or a bear market sucker rally. Personally, I think it is a violent bear market rally and markets will test the previous lows. Now, what will trigger the fall is anyone's guess. Maybe politics, maybe the 'swine flu' or maybe a bankruptcy declaration by a company like General Motors. But something will happen to take the markets lower. I will take some more money off the table in the next week, before the election results are out. At worst, I will miss 5-10% of the upmove if a stable government is formed. On the o...