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Uncategorized | Portfolio Yoga - Part 29

Category: Uncategorized

Is it time to invest into PSU Banks?

Even though the markets are near to all time highs, one major sector that is lagging behind is PSU Banking Index. The chart below is a relative plot of Bank Nifty and CNX PSU Bank Index. While PSU Bank Index has been found lagging the Bank Nifty, the gap was never as wide as it is now.

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But does that mean PSU Banks are cheap? The chart below plots the historical trailing PE of PSU Bank Nifty Index and a look at it does say that we are very near to valuations that were seen way back in 2009.

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But the difference between Bank Nifty (where Private Sector Banks are now the main movers and shakers) and PSU Bank Index shows that the difference is not due to a fall in Banking stocks as a whole but a fall based on the perception of quality of assets and the returns one may achieve going forward.

A play on Banks is a play on the Indian Economy as well. If one believes that we have seen the worst and the economy should be rising from here onwards, a long on PSU Bank is the best bet since there does exist some “margin of safety” in terms of one buying them at a near historical cheap valuation. But on the other hand if economy is seen to deteriorate even further,  the best bet would be to be long Bank Nifty and short PSU Bank Index (though this trade cannot be set up due to non availability of PSU Bank futures). 

Indian Presidents and Sensex Returns

Of the many well known cycles in the market, one such cycle is the Presidential Cycle. This is applicable only to United States.

Quote about it from Investopedia:

A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a new U.S. president. According to this theory, after the first year, the market improves until the cycle begins again with the next presidential election.

While India follows the West Minister style of governance and hence we should maybe just replace the President with the Prime Minister, it does not work since there is not much of a fixed tenure either of the Prime Minister or the election themselves.

While our President has a fixed tenure and almost all of them have lasted their time, owning to he not being the decision maker as the US President is, there is not much of an influence he can create on the economy.

But I felt it would be interesting to analyze how the markets have behaved during the tenure of various Presidents starting from Giani Zail Singh and here are the results,

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Average Performance of the market during the 1st year of the President Term is the lowest with Year 2 and Year 3 competing head on head.

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The biggest gain came in the 3rd Year of Zail Singh when Sensex doubled. K R Narayan on the other hand saw 4 of his 5 years Sensex ending in Red.

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And finally, percentage returns of Sensex during their respective terms.

The first year of Pranab Mukherjee saw a return of 12%. With 2nd being positive across all Presidents, shall we see a continuation of the ongoing bull rally?

 

  

 

Consecutive days of Wins and Loss in Nifty

 

When Nifty closed in Red on Friday (8th Nov 2013), it was the 37th occasion that we have seen Nifty Current Month running futures close in negative for the 5th day running. The chart below (which is plotted on Log Scale) shows the occasions of number of Winning / Losing streaks. 1 means that the Win / Loss was just one day before it turned around. 

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BSE Sensex vs. S&P 500 (US) – Year by Year returns comparison

The chart below displays the returns of BSE Sensex vs. S&P 500 of US since 1981 till date (November 7). What is interesting is that since 2003, we have outperformed S&P 500 on every positive occasion and under-performed S&P 500 whenever the year ended in negative territory. I have used the Open and Close to determine the returns. 2013 seems to be the first occasion when S&P is strongly performing on the positive side compared to the Sensex since the start of the secular world wide bull market of 2003.

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Risk of buying a Wrong Lingerie

Sorry for the tongue in cheek name for the post, but then again, what can explain such a wide difference for choosing the wrong brand 😉

 

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Since the time of listing of Lovable lingerie, the stock has returned a measly 30% return vs. the 215% growth seen in Page (Jockey).