Rummaging the Rubble

ACTION TIME TO BUY

Filtered Stocks - Short & Long Term
What is more Important in stock markets - ENTRY or EXIT time?
This question has been nagging the minds of all investors ever since the stock market was
invented. There is no clear answer so far, although hundreds of books have been written on
stock markets. The simple answer is as under:

EXIT Time for Bull Market; ENTRY Time for Bear Market

Now that we are in a bear market by all means, the question is whether it is right time to enter in
this bear market or bulls are still being slaughtered? Whenever you try to buy, you become a bull
and when you try to sell, became a bear.

Whenever the market goes down, they call it “Profit Taking.” No one ever says “Loss taking.”
Right now, the damage is more like Katrina. Rubble, rubble everywhere. You have to find
something valuable available virtually free.

In investment, an Investor usually asks the following questions (some they are explicit, some
they ask within themselves)

1. Is it right time to Buy?

2. Will not the markets go down further?
3. What should we buy?
4. How long do we have to hold?
5. How much we can possibly gain?
6. What is the downside risk for the stock?

If above questions are answered, the investor loosens the purse and starts investing.

However, during this market collapse, especially in India, the investors have started asking the
following questions. Our comments are given immediately below in Blue.
1. Oh my god? How low the SENSEX will go to?
We are in worst ever credit crisis. It is specific to USA, and has spread to Europe and UK. It
is limited to a financial sector. No one knows how low will SENSEX go, so let us not involve
in prediction game. Further, we are going to invest into individual stocks, so why dwell too
much in the big talks like Index movement?
2. Are we finished or washed out with the market?
The market never gets finished or washed out completely. The market lives on. So use steep
correction as suitable investment opportunity
3. When will the market revive? Will it go to 21000 again?
Again, predictions game. Whether the market goes up or down, we are concerned whether
the stocks that we have invested in will give us suitable return. Yes, any sizable gain in a
short term will be a bonus. Focus on one to two year’s horizon. The target of 21000 is not
achievable in a medium term (next five years or so). The losses are so much, that the
investors will be keen to take profit, if the stock makes a gain of 10% to 30%. No one has
more patience now.
4. Will the market go to 5000?
When the market was at 21,000, the brokers were talking about the index going to 50,000 to

Copyright © 2008 - Anil Selarka (Kalidas)

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60000. Now that, the same brokers are talking about 5000, and if it goes to 5000, they will
talk about 3000. There is no end to it. To be quite honest, individual stocks do not
necessarily track indices. For instance, when the market was near 12000, Hotel Leela comes
down to Rs. 21.85 and with the present index of 8500 (35% down), same stock is trading at
Rs 26.50. You therefore better worry about the stock you are going to invest in rather than
talking about markets that will lead you nowhere.
5. How much we should invest? Should we invest all now?
It depends on your risk taking abilities. Do not invest more than you cannot afford to lose is
the principle of stock market investment. Not everything is going to zero. There are values in
the stocks when they are battered. The present opportunity is on a golden platter. So use it.
To give you an example, take Arvind Mill that has collapsed into Rs 13.10 today. Even a yard
of Arvind Mill fabric cost over Rs 30 to 45 per meter, or one shirt cost over Rs 150 to Rs 300.
With this amount one can buy about 10 to 20 shares of same Arvind Mill.

The stocks today are so cheap that even toilet paper often cost more. Do one exercise. Take
the inventory of items of your household that you have not used for more than 12 months.
Sell it out in open house or garage sale or sell it out to some hawkers who buy such stuff in
barter trade. Ask them to pay cash instead. Use that money to buy above quoted cheap
shares. You will be able to reduce dead inventory in your home; make enough space, clean
up the excesses and got some really valuable shares, that may double or triple in less than
one or two years. Please note that when the confidence returns in the marketplace, these
stocks multiply in less than five trading sessions.

If they have come down very fast, they will climb up with equal speed. Please be practical.

Copyright © 2008 - Anil Selarka (Kalidas)

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6. Is it not risky to invest now?

There is a risk everywhere. Even if one is healthy, he can be in bed if he meets some
accident. When one comes out of his home or office, there is no guarantee that he may not
be hurt by someone walking on the street or sidewalk. Do not ask such questions - they are
not worth even asking, where is the question of getting the answers?

You: Great, I now understand the game. I will take reasonable risk. So pick up some stocks for
me and advise me. I am buying on two year’s horizon at least.
Me : That’s my boy. Now I will tell you what should you do. Remember, this is a stock market
and this time it is tough. If you are not made of steel, try to become one.

How to Buy in Washed Out Market?

There are two angles. One for domestic investors and other foreign investors or NRI. Following
is the consideration that governs my approach:

1. Strength of Rupee (for International Investors including NRI)

a. The stocks are cheaper by 50% to 80%, and the currency is cheaper by 20%
(from Rs 39 to Rs 50). This makes the stocks very cheap if you decide to send
more remittances to India (and you must)
b. India may suffer in pace, but not in aim. The growth may be subdued somewhat,
but will pick up in 12 months
c. Current weakness in Rupee is due to manipulation in world market by USA and
another, sudden fall in all markets have initiated margin calls even on funds facing
redemption pressure. This is temporary event. The Rupee will regain its strength
soon. The relative strength of dollar is more on weaker side. In fact it could
collapse under its own weight.
2. Strength of Economy (to all investors)
a. The days of US supremacy is gone, That nation is heading towards disintegration
slowly but surely.
b. The days of consumptive society is also gone. The days are for savers who have
preserved the wealth
c. Only those countries will prosper who have larger population. China and India
head the pack but the India is ahead in domestic based growth whereas china
rely on export led growth.
3. Sectoral Growth to all investors)
a. A growing economy needs power, infrastructure, oil and gas, transportation,
hotels, shipping, port developments. The info tech, pharmaceuticals,
entertainment sectors will perform better.
4. Regional Growth
a. There will be more trades within Asia and South East Asia. The wealth has been
transferred to Asia, South East Asia, Middle East and Far East. Africa is now on
the verge of expansion.
5. Commodity Growth
a. Steel, Cement, Auto, Agriculture, Plastic, Chemicals will outperform. While world
may be reeling in recession, India will be on expansion mode after present turmoil
is fully played out.
b. Oil and Gas will outperform Coal; entertainment will outperform and dominate
service sectors. Copper, Aluminium, Zinc, Tin, Stainless Steel and Carbon Steel
will lead the sectors. These are most attractive sectors today.
c. Finance sector will take back seat, not because of its potential contribution but
more due to risk aversion
d. Agriculture sector will mushroom most. Sugar, Soybean, Coffee, Corn will
outperform other soft commodities.

Copyright © 2008 - Anil Selarka (Kalidas)

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6. Growth in Housing
a. This will be engine for growth. Home Mortgage and Home finance industy will
prosper as the default rate will be minimum.
b. The sytem of mortgage in India is diametrically opposite to what is found in USA.
They are incomparable.
c. Home furnishing industry will prosper.
7. Precious Metals and Diamond
a. Gold and Silver will outperform diamond industry for at least 2 to 4 years. Future
currency regime in the West will be relatively gold and silver based. This will
cause demand to outpace the supply.
b. Growth in diamond demand depends on countries like USA, Japan, Europe and
UK. The Japan will be major customer for diamond due to rise in Yen which will
be perennial feature for next 7 years
8. Banks and Financial Sector
a. Banks will underperform especially private sector banks due to dearth of capital
b. Stock market will revive but still under perform.
c. Debt market will prosper due to high interest rates
d. Insurance sector in India will be more stable than rest of the world
e. Much depends on Taxation policy. There is strong case for lower corporate tax
and also personal taxation. Interest rate and CRR policy will take a back seat.
However, these are politically dependent, so anything could happen.
9. Growth inTextile and Garment sectors
a. They will be more domestic and Asia dependent
b. Garments will outperform textiles.
10. Growth in Music and Entertainment industry
a. Music, TV, Video, Audio and multimedia industry will have huge growth for next
decade
b. Bollywood will emerge as challenging center to Hollywood
11. Growth in Sports industry
a. Cricket as usual
b. Followed by Football, Tennis and Gymnastics
c. Sports related Advertisement industry will have maximum growth

Based on above concepts, the following is the basis of industry, sector and stock selection.
1. Select The industry
2. Narrow down to sectors within that industry
3. Select companies having least debt
4. Select Two top tier companies, One middle tier and One small cap with innovative
technology.
5. Select the popular companies. It is more like a fashion parade or beauty contest, where the
most popular
6. Stock selection will be on following basis:
a. The defensive sector will under perform
b. The stocks that have dropped most will rise fastest
c. The stocks that have not fallen much (less than 30%) will under-perform
d. Mid Caps will outpace main Index stocks and also small caps

What the Investors must do as preparatory steps?

1. Avoid putting in new funds at the moment. The market is having strong negative bias.
2. Reshuffle the portfolio for the time being. It is like raining heavy outside forcing you to stay
home.
3. Normally, I keep the list to 12 stocks,.Since many stocks have fallen over 80%, the list is
expanded to 20 stocks at the maximum
4. Sell high PE stocks and raise the cash

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5. Swap stocks from higher value to lower value. Never swap from lower value to higher value.
6. Do not go for stocks for less than Rs 5 as there is chance that there will be reverse split or
consolidation of shares.
7. Make a recent inventory in your home. Chose the items that have not been used for last 12
months. Sell them out and raise cash whatever the amount for buying some mid cap stocks
that have become small caps.
8. Be prepared to withdraw money from Provident fund (taking a loan), borrowing against Life
Insurance policy and and Bank’s fixed deposits, and postal savings. That money will be used
to buy new stocks when the market has almost stabilized or drops another 30% from current
level. This may happen, do not be surprised.
a. The thinking is that when the stocks rebound from very low base, they could have huge
% returns. Some stocks may rise 4 to 5 times. (400% to 500%) in two years. Even if you
part with higher deposit interest rate of 10% per annum or 20% in two years, the % gain
of about 400% to 500% will more than compensate loss of interest income.
b. Do not go for stocks which have not fallen much. When the market recovers, these
stocks will fall because the investors will go for stocks having fallen most.
c. Under current environment, the stocks having moderate level of debt are more
acceptable. Capital intensive stocks may not perform well.

Stocks in the Dock:

I normally limit the selection of stock to 12 but due to heavy fall, many stocks have fallen to great
extent. I have therefore extended the list to 20. After some time, they will be whittled down to 12
after profit taking in some of the least prioritized stocks (last 8).

I have given the following 5 stocks as selection list. There will be 15 more that will be added on
daily basis @ 5 stocks per day.

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ADDED 4/11/2008

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ADDED : 4/11/2008

Copyright © 2008 - Anil Selarka (Kalidas)

 This suggestion
is withdrawn due
From the mind of Kalidas to recent Page 10 of 11
developments

Other stocks will be appended here @ 5 stocks per day for next 2 days. This PDF file (and also
the html file in the browser on the blog) will be revised every time, so that you can discard the
previous one and use the latest one.

Do not be guided by Dow’s sucker rally of 889 points yesterday. There are two possibilities:
1. A massive rally is rigged a few days before the bad news come out. The stocks then retreat
but still above desired support level. For instance, if Dow had fallen before 8000 and the bad
news were released, there could be massive fall. If the market is pushed by 1000 points, and
then the bad news released, the market will remain above key level and the collapse avoided.

Copyright © 2008 - Anil Selarka (Kalidas)

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2. There is really some good news, but none was released.

Kalidas, Hong Kong

Oct 28, 2008 (Ref: 08-011-Action Time to Buy)
updated till 5/11/2008

Copyright © 2008 - Anil Selarka (Kalidas)