How to Invest in a Bear Market

Date :- 04/06/2015 -- Well I am writing this post when the Market already has been corrected by 20% withing a span of two months Nifty is below the psychological level of 8100 and the big question still stand out that will there be still any further downfall or it will get stable?

Well to answer this big question I would like to derive a few more question and will try to answer that and once all this question will be properly answered you will get the a proper answer I believe.

Why this fall happen ?
Well as nothing happens without reason so does the market. None of us must forget that we already have a bullrun of 2014 where market was up by 40% so we can say this is a timely correction.
But yet that not define all because in some strong bull market we used to see market gives 40-50% return year after year.So what actually happens?

1. Over expectation on the New Govt

• People does have some over expectation on the new govt. that comes to the power and tend to forget that they have a limit. Though they have not done very badly like GDP growth rate is increased by 2% IIP growth is at all time high of 5 years, new investments are coming, Debt is reducing on the account of some good policy like direct transfer of subsidy, de-regulated petrol price which makes the import cost lower, gold deposite scheme, green energy efficiency increment so all in all we can say about the performance they are on track. But couple of factor still affecting their operation like non implementation of few bill like GST , many power projects are yet to take a start off, power distribution infrastructure is still less equipped to meet the demand and more over green energy per unit cost is still very high as they are in the capex stage. Along with it realization of few projects mainly in the housing sector is very low. Even some finished houses is not getting sold mainly for the income disparity so the Housing for All is in a halt stage.

2. Few domestic concern

• First of all last year and this year there is below average monsoon [93% of avg in 2014 , 88% of avg in 2015 projected]. As india is a agriculture driven economy hence below par monsoon eventually greatly affect the economy adversely.
• Though IIP growth is high but due to bad infrastructure and transportation facility corp market is facing some big challenges and farmer are compromised which is grossly negative for the country.
• Many projects is stalled for socio economic politics and no direct channel of investment and realization is happening.
• Muted earning in the forth quarter which is a historically muted quarter hence leads to curtail down many stock price.

3. Few International concern

• Crude oil price is now moving on the up side and perhaps continuously do. Hence country debt as well as raw material cost for FMCG,Paints,Durable goods are moving up.
• International market is on a doldrums considering Greece debt ,Japan bearish market,Russia war like mentality, Yemen riot etc.
• FIIs are running out due to MAT concern though govt are in talks with the IT to resolve this issue.Also multiple IPO has launched in China which  is lucrative for them. As india is not the only emerging market hence it is easy for the FIs to switch.
• Rate hike by US due to strong economy . As we all know emerging markets in general were vulnerable to a rate hike by the US federal reserve over the next six months.

emerging markets in general were vulnerable to a rate hike by the US federal reserve over the next six months.

Read more at: http://www.moneycontrol.com/news/market-outlook/real-estate-to-see-more-pain-nifty-may-breach-8000-ambit_1399462.html?utm_source=ref_article

emerging markets in general were vulnerable to a rate hike by the US federal reserve over the next six months.

Read more at: http://www.moneycontrol.com/news/market-outlook/real-estate-to-see-more-pain-nifty-may-breach-8000-ambit_1399462.html?utm_source=ref_article

emerging markets in general were vulnerable to a rate hike by the US federal reserve over the next six months.

Read more at: http://www.moneycontrol.com/news/market-outlook/real-estate-to-see-more-pain-nifty-may-breach-8000-ambit_1399462.html?utm_source=ref_article

When this will be over ?
Well it's really hard to say when this will be over or there will be a further downfall:-

1. Like nifty has a psychological barrier at 8000 level so analyst are expecting it to get stable around it. Though if it will not get stable around it then there is a serious problem.
2. Once the MAT issue is resolved by govt policy intervention then there should be great interest for the FIs to invest.
3. Once the GST bill will be passed then there will be a definite uplift in the domestic market.
4. Also in the first & second quarter we can expect some better profit and performance from these companies hence.

Is there still some fundamental downside ?
Well to be honest Yes there are few.

1. In case there is a drought situation then inflation will increase which will adversely affect the economy.
2. In case the GST was not passed then the growth will be muted.
3. In case real estate demand will not pick up then realization will be very low and high debt company will suffer.
4. In case big projects gets halted then many related things could have been affected.    

What we should do ?

1. Try to find some fundamentally good stock which is now available at attractive valuation and where downside is very limited.[Strides Arcolab,Lloyd Electric]
2. Avoid high debt stocks [specialty banking and finance stocks also the NBFCs ]. Strictly avoid all those stocks which have more than 1 DE ratio.[PFS,DHFL,Delta Corp from finance and Mahindra CIE,Atul Auto etc]
3. Avoid high PE stocks[like Nestle,HUL,ITC] . Any stocks above 30 PE should be avoided even if it has a 20-30% CAGR growth rate. But a high growth stock i.e. which PEG is under 0.5 or so and available under 30 or around 30 PE should be a good buy but do not for get the rule 2 of DE ratio[e.g. Tasty Bite,Tata Elxsi].
4. A mid cap,'0' Zero debt, high growth stock with PEG < 1 could have been a very good buy.[Tata Elxsi,Strides Arcolab]
5. High quality but low market cap stock should have been your ploy.[Lloyd Electric,Tasty Bite]
6. Also try to check the fair value of the stock as per our previous post.  

Check List :-

So the checklist should be.

1. PE under 35 [in case zero debt only] or 30. Low PE will be good.
2. DE under 1 or 0.5
3. PEG must be under 1.
4. Sales growth 9 year CAGR should be >20%     
5. Market Cap should be small or mid.
6. Fair value should be less than the market price.
7. Technical position should be bullish like bullish MACD crossover happen, stochastic should be at oversold position.

My Favourite Stocks and there parameter :-
     

Stocks	PE	PEG	DE	Fair Value	Market Cap	Sales/EPS Growth [% CAGR for 9 year]	Trigger	Sector
Tata Elxsi	34	0.91	0	1172.21	3516	Sales :- 17 EPS :- 11	Customer concentration removed from Japan	IT
Tasty Bite	28.44	0.19	0.72	1271	306.89	Sales :- 24 EPS :- 20	QSR growth and PBI marketing in overseas	QSR FMCG
Strides Arcolab	13.18	0.39	0.12	2322	7023.61	Sales :- 15 EPS :- 25	Shasun Pharma integration US growth story to begin and Apsen pharma in Australia	Pharma
Lloyd Electric	8.5	1.18	0.92	480	690.69	Sales :- 22 EPS :- 14	Moving to FMCG AC branding	White Goods