Home > NIFTY Strategy > Strategy for volatile times

Strategy for volatile times

Wednesday, February 6, 2008 Leave a comment Go to comments

NIFTY fell of the cliff today falling 300 points from the top-thats more than 5%. Such moves have become common these days and is increasing the risk aversion of investors and traders.

So what can one do in these difficult times?

For most investors, the best option might be sit out this rough period without increasing your equity exposure. This requires lots of patience and an ability to withstand lot of gyrations in your portfolio.

Another option could be keep your portfolio holdings intact and do some short term trading in the same stocks to reduce the average cost of your holding. Of course this strategy might not work if you are holding all the bad stocks!

Another strategy might is to conserve your cash,deploy it on crashes and then get out with small 5-10% profits.

Only day trading systems are consistently making money in these volatile times. These are difficult times for everyone else.

So need of the hour is to keep a low risk profile and be patient.

And be prepared for more bad news from the US. People are still guessing whether it is more like 1998 or 2001 in the US!

Till date $150 billion has been lost in the subprime. But one needs to remember that almost $500 trillion is present in the credit derivative world. And the biggest problem is that credit market has lost liquidity, so banks are stuck with their positions. It is like being stuck in “circuit down” stock! My guess is that some FIIs are selling emerging market positions to generate some cash on their books.

Till the housing crash in the US begins to stabilize, it is very difficult to say as to what will bring  the “next storm”.

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Categories: NIFTY Strategy
  1. sagecapital
    Thursday, March 6, 2008 at 8:48 am

    Ashish-Welcome to the trading world! Congrats and good luck!

  2. ashish ji
    Thursday, March 6, 2008 at 7:50 am

    I entered GUJ NRE COKE at 115 LEVELS on JAN 21/22 big fall and EXIT COMPLETELY on 164 levels… re-entered at 140s and yesday exit again at 164 level… so made desent moey in this stock 🙂
    my 1st short terrm trading experience

  3. Wednesday, March 5, 2008 at 3:50 pm

    How about shorting on every rise in beaten up sectors? I am following this strategy since the big fall in Jan an I am making good profits. I think this is the right market to go short and make money. I must say this is good only for traders because for investors this will be a new strategy and it takes time for them to learn the skill of going short on the market. For traders its a bless!

  4. Taniya
    Thursday, February 14, 2008 at 10:11 am

    Dear Anil sir,

    Hi. I am a college student, and had started learning about the stock market recently……I was reading your response and found your story very interesting.

    Even i am interested to learn more about the stock market and also the derivative market. Can you please help me, as with from where would i get some learning information, some data which can enhance my knowledge. some thing like which will help me to understand the stock market from the basics….

    Waiting for ur reply.

  5. anil bansal
    Monday, February 11, 2008 at 10:32 am

    I started investing in stock markets in 1977 while I was studying at IIT Delhi. They were my savings a couple of hundred rupees a year would get invetsed. I would study the ipos and invest 3 years later when the profits were about to start kicking in. never sold any stock except to buy my house in 1994 when I liquidated all my holdings. Some of my investments were scici now icici bank, srf, goa carbon, cummins, itc, sail, jp associates, etc.
    With the internet and FII’s the stock market has become more like a casino. Now I am trying to learn the finer nuances of the stock market and devote at least 2 hours on a daily basis on research.
    It is strange now to notice that I have never invested in a reliance stock. till date.
    earlier the participation of public in the stock market was small, so the reliance for income by the promoters was on business. so the dividend yiels were very high, today with so many participants in the stock market the reliance for income has shifted on the trading of stocks in the stock market.
    If you see the insider trading disclosures, promoters sold their holdings around the peak in january to buy them in the pits of 21 and 22 jan as if god had given them premonitions of the impending crash.

  6. sagecapital
    Sunday, February 10, 2008 at 7:46 pm

    Anil- Thats the greatest part of this business. You are always on your toes and learning.
    Holding a stock for 20 years? May be you got a Reliance at 20 bucks or L&T at 80 bucks!
    In all these 20 years- Did you sell your stocks during the bear markets or did you hold on to them?
    What makes you sell/exit a stock?

  7. anil bansal
    Sunday, February 10, 2008 at 8:13 am

    rationale for vaibhav gems:
    book value 227
    gdr at 220 in oct 2007
    probable under reporting of eps by excess raw material purchase in the dec quarter to scare current gullible investors into selling
    substantial take over and open offer in 2006 at 279
    extremely low volumes suggesting accumulation after a distribution at the peak.
    good fall from its peak.
    similar patterns/strategy – micro inks, matrix labs
    I am still learning. I have held stocks for for as long as 20 years and do short term trades too.

  8. JK
    Saturday, February 9, 2008 at 10:05 pm

    “EMAAR MGF AND WOCK HOSPITAL WITHDRWS IPO PLANS ” even uco bank has deffered it s IPO what do u read in to this ? i sense short term severe down trend after Reliance powr is listed on 11 th ,,what does ur machine suggest…

  9. sagecapital
    Saturday, February 9, 2008 at 12:30 pm

    Anil- You have not explained your rationale for buying Vaibhav Gems. Is it just because it has fallen too much from the peak?
    Is it value? Is it growth?
    Holding a stock for 3-5 years is surely a “buy and hold” strategy. Those kind of investors might not even bother to watch daily price movements in the markets.

  10. anil bansal
    Saturday, February 9, 2008 at 10:49 am

    Dear Sage, 480 for vaibhav was to disinvest and look at vaibhav 4 years ago to see the returns I see it as a good reentry point. Most mid caps move in 3-5 year cycles. Eg india glycol, micro inks, jindal photo etc. Reliance as you rightly said is in a bubble extremely overpriced. Only in India can a RIL do what it did by dumping RPL at a peak market price on unsuspecting public. So people like warren buffet would not invest in India. A real principled person who is even against esops as they are against the investors interest.
    You say short the market now! can hit you back. next week may see a surprise up move on nifty. This is difinitely not the level of nifty one would attempt to short.

  11. JK
    Saturday, February 9, 2008 at 12:06 am

    “EMAAR MGF AND WOCK HOSPITAL WITHDRWS IPO PLANS ” even uco bank has deffered it s IPO what do u read in to this ? i sense short term severe down trend after Reliance powr is listed on 11 th ,,what does ur machine suggest…

  12. sagecapital
    Friday, February 8, 2008 at 7:06 pm

    This market doesn’t move on value but on “momentum”. The only thing is that “momentum” is down as of now. So the only way to make money is to go short!
    Now it is not a question of -“what will rise fast”. It is a question of “what will fall less”.(Pharma or FMCG?)

    And the “value” of a stock is not determined by “how much the stock has fallen from the peak”. A midcap with a PE of 100 if it falls 50% might still remain expensive at 50 PE whereas a stock with 25 PE might just fall 20% and be a good value at 20 PE!

    Also, I am not too sure the basis of what you said- “The large caps tend to give sure but less ROI compared to mid caps”
    A midcap stock like Vaibhav Gems (from your list) has fallen from 480 to 100 levels in last two years. What kind of ROI are we talking about? It is minus 80% and that too in a bull market!
    In the same time a large cap like RIL has moved from 700 to 2500.

    On a different note-In India investors are looking for “growth” rather than “value”. If Indian market had been a “value” market, Mr. Buffet would have definitely put his money in an Indian company! Has anyone thought as to why he bought Posco steel(South Korean company) and not a Tata Steel?
    Remember he made tons of money on his Petro China stake.( a Chinese company)

  13. anil bansal
    Friday, February 8, 2008 at 10:51 am

    Dear Sage, One must have a balance of stocks in his portfolio. The mid caps mentioned by me have some excellent value and may rise fast after the correction (I can be wrong). The large caps (Nifty/Sensex stocks) are still overvalued. One with buy and hold strategy must wait before buying into the stocks of any kind. The large caps tend to give sure but less ROI compared to mid caps. So a matter of individual choice and risk profile.

  14. Shyam
    Friday, February 8, 2008 at 9:32 am

    Sage !
    ” Strategy For Volatile Times ”
    Excellent Article !

    Thanks

    Shyam

  15. sagecapital
    Friday, February 8, 2008 at 9:04 am

    Anil- I’d beg to differ that one should buy midcaps. They might be met with selling pressure every time they rise.
    This market shall not move up till liquidity returns to this market and my guess is that (based on past observations) that FIIs/large players chase large caps first.

  16. anil bansal
    Friday, February 8, 2008 at 8:41 am

    I would say that there was a froth of 1000-1500points in the nifty. Another average downside of 500 from 5000 levels in nifty.
    I would say people should hold on to existing positions and buy quality stocks on dips. avoid leveraged positions. Some stocks to watch out for: Crew bos, westcoast paper, peninsula land, gmr infra, mahlife, appolo tyres, india cements, sical, jk cement, vaibhav gems, aftek, prithvi info, tech mahindra, binani cement. Avoid large caps which have not fallen much from their recent peaks. Let the market bottom out before entering large caps.

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