On 25thNovember 2011, Nifty closed at 4710 – A level 26% lower than highs of 2007-2008 and 2011. So does it mean that all 50 stocks that make the index are following a similar trend?
Before answering this question, I would like you all to know that Nifty is made up of stocks of 50 companies representing 24 important sectors of Indian economy. All these stocks have different weights. And for all practical purposes, the index can be considered to be a good enough representative of stock markets.
NSE itself provides a lot of information about Nifty like Full list of constituents, calculation methodologies, etc. for retail investors.
I did some quick calculations to see how individual Nifty stocks were placed with respect to their 2007-2008 & 2011 highs –
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| Nifty Stocks – Discounts to their 2008 & 2011 highs |
As evident, shares of companies like RCom (Reliance Communications) are down 92% & 66% from their highs of 2008 & 2011. RCom, because of various negative reasons may not be the best stock to evaluate. But this small analysis also throws up some interesting insights about other large caps –
- SAIL– A major steel player is down 72% & 68% from its 2008 & 2011 highs.
- Sterlite Industries – According to a few, another ‘Reliance’ in making, is down 68% & 58%
- Tata Steel is down 64% and 50%
- BHEL is down 54% & 50%
- Reliance Industries – Bellwether of Indian stock markets, sitting on a cash pile of more than 16 Billion Dollars, generating cash of around a Billion Dollar every quarter is down a staggering 54% from its 2008 highs and 35% from its 2011 highs!
- State Bank of India – India’s largest bank is down a staggering 54% from its 2010-11 highs!
So what should an average investor do after witnessing shares of mighty and blue chip companies fall like nine pins?
- Long term investors should understand that though index is down around 25%, good individual stocks like Reliance Industries, Tata Steel, SAIL & State Bank of India are down more than 60%. And these are not small or mid caps; these are full-fledged large caps!
- This analysis does not suggest that there won’t be any further fall in these scrips.
- One of the most important points to note here is that there may be several other stocks which might be trading at larger discounts. But, during crisis, it is advisable to look for sustainability of business rather than growth prospects of business. There is no point buying a cheaper growth stock when it may not even exist after the crisis is over.
- It makes sense for long term investors to continue with their SIPs in good mutual funds or index funds. Also investor should start selectively buying these large cap stocks, which score high on sustainability parameter and have visibility in revenues/profits.
Great introspection of the current market conditions….Long term investors can take a large pie from the money invested in these stocks..
Good analysis & Nice snippet….
Commodities are heavily oversold because of the pessimistic sentiments on the Global Economy slow down which may extend for a longer period than anticipated…
Banks,Real estate, Power and Infra are down due to the higher interest rate periods which would not be lowered until the inflation cools down..
It is better to bet on the co's sitting on huge piles of CASH or the FMCG co's till the interest rate tide reverses for medium term (1-2 years).
However for longterm any of the above picks would work.
@Anonymous
Thank you and welcome to Stable Investor. It is indeed a good time to start accumulating large caps.
@Rakesh
We agree that in these recessionary times, it makes sense to stick to FMCGs and Pharmas. But to make money in the long run, you have to make use of market pessimism as well as cyclical downturns to accumulate good quality stocks. In the long run, buying Metals can be an interesting option.
wow , good analysis and seems to be noble investment ideas for the investors pl keep up the good work.
pl also send me excel version of this document. thanks a lot.