After a unidirectional climb for more than 1 year, multiple factors, mainly global ones led to about 7% percent or 2000 point correction in Sensex.  These global factors ranged from year-end profit booking by FIIs, Rouble crash, Chinese manufacturing slow down, nervousness around Fed interest hikes. There were a few domestic factors like bad IIP (Industrial production) numbers @-4.2% , expanding trade deficit and current deficit @2.1%, Rupee slide etc. Though the Sensex has gone up by >2% in last 2 days, we still have many quality stocks available at good prices/ valuations.

For many of the retail investors sitting at the sidelines who have missed some of the rally in 2014, this is a good time to buy some fundamentally strong businesses with excellent growth potential , high returns on capital/equity, having strong balance sheets and competent managements which might be available at attractive prices , courtesy the latest correction. Since these corrections are temporary in nature in this secure bull market (whose trend will be up for a long time, till we have a disappointing 2015 budget or a bad reform execution by Modi government or delayed kick start of investment cycle), one should be buying quality businesses at every dip or correction of market or sectors.

Whenever there is a panic correction in the market or in a specific sector due to market over-reacting to a temporary bad news (as mentioned in my last blog), it’s a happy and delightful opportunity for value and long term investors like us. It’s the time when I sit up with my tongues out and hunt for high quality stocks for long / medium term, available at cheap or fair price.

For example , we had an over-correction in high quality IT stocks like TCS, HCL & Tech Mahindra on fears of slow down due to Europe/ Japan recession and cross currency headwinds as dollar has appreciated against Euro/ Yen etc.  Good quality Pharma stocks like Dr Reddy, Torrent, and Aurobindo etc. corrected too much on Russian Rouble crash. Strong Banking & Finance companies like Yes bank, Bank of Baroda, Axis bank, REC, and Dewan housing also had panic correction and then recovered in last 2 days to some extent. Quality Auto related stocks like Apollo tyres, Tata Motors, M&M also got corrected substantially in the general mayhem.

Last week was a happy week for me, when I was greedily accumulating some of these quality businesses/ stocks, I have mentioned when market was hammering their prices down. Many of these stocks are either a play on the interest rate cycle or domestic growth picking up (like B&F, Auto, Housing Finance)or a play on global defensives/ secular growth stories( like IT and pharma). These have excellent long term growth visibility and tailwinds, high Return on capital/equity, strong balance sheets & competent managements.

My 2013 and 2014 beginning model portfolios (published on the blog as trackers) have done well till now. My 2014 beginning portfolio gained by about 50% when market (Sensex) has gained by 28-30% . And my 2013 portfolio has gained by 56% while Sensex has gained by 40% since then. My actual 2014 portfolio (with some changes along the year, like removal of few stocks like Reliance, Larsen, Bajaj Auto & addition of few stocks like Yes bank, Dewan housing, Torrent pharma, Apollo tyres, Tata Motors , TCS etc.) went up by > 60% while investing in safe and blue chip stocks . I will be soon publishing the model 2015 portfolio by the end week of December 2014.

Happy investing.

Cheers

Amar