Daljeet Kohli gives clear evidence that he is a “thinking” analyst. He doesn’t get carried away by the euphoria and momentum. Instead, he thinks ahead and keeps an eye on what can go wrong to spoil the party.
In his “Top 5 Diwali Dhamaka Stocks” report, Daljeet has cautioned that there is “Clear & Present Danger Ahead”. He points out that the US Fed has kept the interest rates pegged at zero interest with a view to reviving the economy (Quantitative Easing). This has prompted investors to pump in billions of dollars into emerging markets like India where the interest rates are much higher. However, with the US economy showing steady signs of revival, the US Fed has hinted that it would increase the interest rates. This could lead to a reversal of the fund flows and cause a crash of the stock market in India.
Daljeet expresses his concern in eloquent words:
“We cannot assess how it will impact the flows of money into or out of various markets. In our opinion in such a situation of heightened uncertainty usually Emerging Markets are at the receiving end. Hence we believe all Emerging markets have a clear & present danger of money flowing out of the markets & India may not be an exception.”
Daljeet also points out that in May 2013, when the FED Chairman had made statements on withdrawal of quantitative easing, the FIIs had pulled out billions of dollars from India causing the Nifty to crash 871 points.
Daljeet emphasizes that there is no need for us to feel paranoid about this event. He points out that the Indian economy is in decent shape, inflation is also coming down and CAD is under control. He advices that we need to prepare our portfolio for the eventuality by ensuring that it has only top-quality stocks which can withstand an onslaught of selling.
“Investors should stay put in the market with strong set of companies in their portfolio. They should avoid high beta stocks. Only fundamentally strong stocks may be held on even at this level. Avoid weak balance sheet companies & the ones that have seen stretched valuations” Daljeet says in a confident tone.
At this stage, we must also remember the sage advice that Rakesh Jhunjhunwala, the Badshah of Dalal Street, has given us. The Badshah advised that while there would be an adverse reaction to the FED’s tapering move, it was “over-hyped” and its impact would not last long. “Even if interest rates go up, the quantum of rise will be one which is not going to affect sentiment towards India”, the Badshah said authoritatively.
In my view, the advice of both stalwarts is sensible and requires to be addressed. Junkyard and high-beta stocks ought not to have been in the portfolio in the first place. These stocks will crumple at the first sign of trouble. Similarly, capital goods, infra and cyclical stocks which are quoting at bloated valuations in the hope of positive government action will collapse like a ton of bricks.
So, this is a good opportunity for us to do some spring-cleaning of our portfolio and get rid of the low-conviction stocks, keep cash handy and prepare a shopping list of the high-conviction stocks.
If you want ideas on some high conviction stocks, you should check the Model Portfolios prepared by the experts.