Learn investor behavior - How to ride stock market sentiment?

As there's lot of pessimism prevailing in the stock market, I’m forced to right this article which will guide and help retail investors in selecting best investment course for themselves.

No matter how expert are you? But you tend to take emotional decisions to pick right investment for your self and today’s article would help in understanding investor behaviour in stock market.

Investor Behavior

As depicted in the above fig. , it’s the “Optimism” which drives every investment that you do. Be it stock market, reality, fixed deposit, ULIP, it’s your optimism which leads you to invest in any of the financial instruments.

Once your decision pays off and becomes reality then excitement, thrill and euphoria takes over and drives the investor sentiment. At that point of time investor shows overconfidence due to the success he has made using his investment decision, stock market is at it’s pick and making quick money for the investors. He starts believing every research report, news that he understand and starts taking larger investment exposure. This situation is largely driven by the Euphoria in the market and it’s the “Point of Maximum Financial Risk” for the individual.

Once the rally is over, soaring market calms down and tries to level off that is to balance out the premium at which market was trading due to euphoria VS actual valuation based on earnings. This leads to Anxiety, Denial and Fear in the Investors which was totally bullish and riding through market sentiments. At that point of time investor feels that “I’m a long tem Investor”.

As the market continues to fall, the same investor starts feeling desperation, panic, capitulation, despondency. This is time when investor feels that, “This is not for me.” He tries to sell his holding in the stock market even at enormous loss as he has suffered huge erosion of the wealth. Investors become depressed about the stock market and there’s lot of negative news floating around which keeps them away from the stock market. But dear investor, this is the “Point of Maximum Financial Opportunity.”

When I look at the current situation, there’ fear prevailing in the stock market due to U.S. downgrade, U.K. nations hanging bankruptcy issue, U.S. double dip recession worries, inflation in emerging markets and local political issues in India. It has turned into panic selling globally but despondency and depression is yet to come. Does this mean it’s not the right time to buy? Well, no one can time the market, as we’re in bottom cycle of the stock market, I would advice to start accumulating stocks/businesses in your portfolio from the longer term point of view with the knowledge that it could go down more.

Hope this article would help lot of investor and guide through this turbulent time. You can also check my article on "Risk VS Stock Market" to understand are we at risk by not investing in the stock market?

Happy Investing!!

Investment Idea : UCO BANK by stock market expert

I'm glad to share one more excellent investment stock idea: UCO BANK with you people.
It's PSU bank which has excellent track record. It has announced it's 3rd quarter results for FY10. Profit went up 42.74%, net interest income increased almost 40%, Deposits grew almost 20% in this quarter.

UCO BANK is one for the best performing PSU BANK and also its candidate for acquisition by bigger PSU banks. For now there's no such announcement from government but this is well known rumors in the market about small PSU banks.

After its excellent performance in this quarter stock has touched it's 52 week high for Rs. 66. Currently stock is trading around 59 Rs. I strongly believe that in the next upmove it will by pass it's 52 week high.

Other Factors:

- UCO BANK has planned for FPO to raise around 400-500 crore from the market by March END.

- If we calculate no. equity shares UCO Bank is likely to divest and the amount it's going to raise PRICE for IPO Comes between Rs 66- Rs 82.

- Technically stock is showing really good support around 56-58 Rs.

I recommend to buy UCO BANK with short term target of 66 Rs. which is more that 10% gain from current levels and long term target of Rs. 76-80. You'll see stock at higher levels by April-May'10.

Happy Investing!!

Disclaimer: I have investment in UCO BANK. Please take your own call before investing in the stock.

Stock Market Review and Outlook Next week

It was turbulence on the DALAL STREET last week. NIFTY and SENSEX lost around 4.1 % and 4% respectively.

People were talking about correction which was pending for last few weeks, finally came with Bang. For last couple of weeks markets were bit confuse about decisive directional move. Finally it got bunch of bad news which gave direction to the market.

Reasons:
- It was disappointing set of earning numbers from Major player like L&T.
- Monetary tightening concerns in China after posting excellent Q4 GDP.
- Obama new proposal to put strict restriction on the big banks and new firms on WALL STREET.
- Commodity related stocks fell due to concerns about overheating in China.
- Realty stocks got hit as investors are bit skeptical before RBI policy meet next week.

Now what's next?

Positive Factors:
- Nifty managed to close above 5000 levels which is showing some strength and will recover if there's support from global markets.
- Most of the RBI actions have been priced-in, so market will avoid any out come from RBI policy meet if there s no major Negative surprise.
- There was some buying interest from Domestic Insurance Players on Friday which gave some strength to market.

Negative Factors:
- Markets were down with enormous volume. I look for this factor for directional move and picture doesn't seem to be good.
- FII's were net seller last couple of weeks and now DII's joined them as well.
- U.S. Markets got hit badly on Friday which may get reflected on Monday.
- If nifty breaches 5000 on closing basis then we may see levels of 4914 - 4860.

Advice to Investors:
- Get ready with money to invest in the market. If you get fall in the market next week invest partial money around levels of 4860-4900.
- For trading purpose pick up some of the High Beta counters like HDIL, Sesa Goa. You'll get quick returns in these stocks. It's high risk strategy.
- Look for PSU stocks which were tumbled last week and enter at 30-30% discounted price. I believe it's the best place to be invested.

I'll come up with investment idea for different stocks when market comes to suggested levels.

Happy Investing!!

JUBILANT FOODWORKS IPO ANALYSIS : DOMINO'S PIZZA

JUBILANT FOODWORKS has come up with an Initial Public offer (IPO). It's planning to raise around Rs 328 crore. They have kept price band of Rs 135-145 per share. IPO closes on 20th January.


Should you subscribe?

- For pizza lovers it's good to invest in the company where they ideally pay money to their own company by visiting Domino's Pizza. Apart from that I don't see any benefit out of the company.

- I would advise retail investors not to carry away with the current IPO trend where Investors have made quick money on the listing day. There's no point of investing in all the IPO's.


Reason:
- Most of the raised money is going to be paid to Promoters. There's not major expansion plan for the company using our money.

- Domino's Pizza is having 286 stores around different cities. By giving current valuation and money they are raising, value for per outlet comes around 3 crore rupees. It seems to be really expensive when you get it for Rs 50 Lacs.

- There's lot of competition in the market from US Pizza and other local players. I personally prefer US Pizza over Domino's due to service and variety.

- At current IPO price company is trading at around P/E multiple of 35, which looks really expensive for me.

Positive:

- Jubilant Foodworks IPO is first of its kind in Indian stock markets. We don't have any previous data about peers to compare. It may deserve some premium.

Take your own call after reading this article.

Happy Investing !!