Contra Investment strategy

Buy - when everyone is selling is the theme of Contrarian Investment strategy.

For a market to fall, series of bad news needs to build up and viceversa for a market rally.

To correlate this with current market situation let us understand a few points:

(1) Indian markets were pricy till a few months back. It was trading at 20 PE of current years earnings.

(2) Inflation has been continuously haunting for the past one year or so.

(3) Oil price have started moving up again - trading at US$ 100 per barrel, which could potentially accelerate inflation

(4) Governments misjudgement of inflation as an outcome of 'Too much money chasing Too few a goods" and consequent tightening of liquidity by increasing interest rates. Infact the Finance minister Mr.Pranab Mukherjee admited in Jan 2011 that the government misjudged inflation due to base effect, but the real cause seems to be supply or production constraints.

(5) Scam after scam and the denial of government to form JPC to enquire into the 2G Scam. This dented the confidence of investors - both locally and globally

(6) Global problems - be it Egypt or Europe

With all these 'serial dosasge' of negative news accumulated in the system to toxic levels ultimately culminating in market fall. And all along all the Analysts, TV Media, newspapers were 'hoping' that markets would recover.

But when market ultimately cracked and fell, all these groups are now totally negative on market. Some call the sensex to touch 17200, some 15500 and some others 14500. Very few of them call for market to crash down to 12000 levels too.

With such negative news everywhere, there seems to be panic selling - both by domestic investors and global ones.

But the undercurrent seems to be changing course now. As a result of the following reasons, markets may bounce back in the short term - may be around budget - be it prebudget rally or otherwise.

(1) Current years PE of index is 17 and one year forward PE is at 14
(2) Govenment may agree for JPC - yesterdays discussion held by Mr.Pranab indicates so
(3) With index falling by 15%, many stocks have fallen by 30% to 40%. Ofcourse this includes those companies who were involved in scam or whose results were poor. But you can always seive out good companies and make investments at a fraction of their original price.

Once these problems are addressed or these negative news fades away, market may run up. With Budget round the corner, the Finance minister who is a well known negotiator may crack the ice and find a solution to parliment deadlocks. Once it is done, markets may zooooom.

It is time to cherry pick stocks and stay invested to make good returns. As Sir John Templeton would say "Time in the Market is more important than Timing the Market".