Rakesh Jhunjhunwala makes it very clear in all his discourses that “In equities, the key lies in predicting what tomorrow is going to be. The tomorrows are going to determine the equity prices. We can’t see tomorrow; but we can anticipate tomorrow”
So, as an investor, its’ our job to peer into the future and see if we can spot the opportunity before the hordes do.
There are so many examples of situations where the risk-reward ratio was in our favour and if we had shown a bit of foresight and guts, we could have made a packet.
United Spirits is a good example of this. Another example is the FDI on retail which we should have foreseen. Yet another is the dilution of promoter shareholding under the SEBI norms. The same thing is playing out presently in Kingfisher and SpiceJet.
Early movers in all these situations have made a lot of money.
Now, here is another opportunity staring in the face which should be grabbed with both hands.
Interest rate sensitive stocks like Banks, Autos, Realty and Infra have been pummeled owing to the high interest rates. RBI Governer D. Subbarao has been under immense pressure from a number of powerful people to relax interest rates. Finance Minister P. Chidamabarm gave a clear hint that high interest rates would go. Economic Adviser to the Govt. Kaushik Basu said the same thing. So did Chairman of the Planning Commission Montek Singh Ahluwalia.
The RBI Governor also acknowledged this fact and tacitly suggested that the rates would be relaxed from January 2013 onwards.
So, we have to position ourselves in advance over the rate sensitive stocks that will spurt as soon as the announcement is made by the RBI.
The only question is about what stocks to buy. Banking stocks are the best instead of messing around with Realty and Infra stocks. One solution is to buy Bank ETFs like PSU Bank BEES or Bank BEES. Here you get a basket of top-notch stocks, spread across the private and public sector.
Another solution is to buy the sector leaders. If you buy SBI and ICICI Bank, you will have the giants of the PSU and Private banking space in the portfolio.
A third solution is to buy the mid-cap stocks like ING Vysya Bank, Allahabad Bank, Bank of Baroda etc which are trading at attractive valuations.
If you want inspiration, you can see the interview of Regan F Homavazir of Darashaw who claims that there is a 100% upside in UBI, Vijaya Bank, UCO Bank.
But in all this, you must remember to be patient and cool headed. The question of a rate cut is not a question of if, but of when, it will happen. If the RBI does not soften the rates in January, it has to do it in February or in March or later. Also, you must buy only top-quality stocks so that even if you are forced to hold on, there is not much to lose in the long run.
Speaking for myself, I have a big chunk of HDFC Bank, SBI, ICICI Bank, Shriram Transport Finance, Bajaj Auto in my portfolio.
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