Steel is in, as I have been saying for the past one year or more. But it took more than a year for the full-blown speculation to develop that gives investors big returns. It is also a reminder to me that patience is as important as judgement. You can be right about the direction of a sector or a stock but that may mean nothing for months and years. Winning in the market is not like ticking off multiple choice questions with one right answer to be decided by one examiner who knows that you have ticked right.
Winning in the market is like ticking off multiple choice questions with many changing answers to be decided by a million examiners who all have their own short-term answers. Those answers coalesce, merge, reduce as wrong answers fall by the wayside over a period of time. Over that period of excruciating wait, patience is the key. Steel has rewarded that patience as false euphoria over software and media stocks rose and subsided.
Steel Authority of India Limited, an ugly duckling till a few months ago, has risen from Rs 10 to Rs 40 in a manic buying that even smart fund managers cannot still fathom. They will drop that effort and jump in at Rs 60 or Rs 80 as the booming exports and domestic demand keeps the steel market red hot for many months, if not years.
What next after steel' Here is a clue ó ahead of smart fund managers. What is the key ingredient to make steel' Its iron ore. What is the biggest iron-ore company' National Mineral Development Corporation. Forget it. Itís not listed. Is there any other' Yes, Sesa Goa. Keep an eye on that stock, an old favourite of punters. (Puntersí familiarity is a key ingredient for a stock to rise during a bull market.)
The market has now moved onto a new orbit and has become totally unpredictable. It may keep moving higher on the basis of more and more fresh buying. Retail investors have not participated in the rally at all over the 1000 point rise. They may be itching to go in now.
Mutual funds have received fresh money in their equity schemes and fund managers would be obliged to invest now. How can they stay in cash' Will retail buying and fresh mutual fund buying create a final manic rise' We shall see.
A rise above 4050 would be based on hopes that higher growth will result from an excellent monsoon this year. The rural folk will get this cash sometime in September and consumer durables will get a fresh boost. On the other side, State Bank of India will have to shell out Rs 25,000 crore as redemption of Resurgent India Bonds.
Even in the current situation of high liquidity, that kind of outflow would be hard for the system to cope with. In short, interest rates would rise. What would that do to bank lending and housing finance' What would that do to bank stocks'