It seems to be a time to churn.

The results season has begun very well in January, 2013. Outperformance of expectations is absolutely necessary to bring confidence back. The fact that all three IT majors and ITC beat the street estimates bodes well for sentiment. This essentially means that the markets will be better placed to handle negativity. The sentiment will slowly look up and outperforming sectors will trigger a sectoral rotation of stocks in the limelight. Investors will gradually move money into sectors that are beaten down and showing early signs of revival. Money has already begun to move out of defensive sectors like FMCG and the coming days could see profit booking in sectors which have performed like financials and IT. Any improvement in reform expectations will be good news for the undervalued PSU pack. Looks like the President of India’s investment portfolio will have a lot of reasons to smile.

Smart money buys stocks which idiot money throws out of the window.

Invest Speak:

Sectoral rotation is an idea that cuts both ways. Large investors keep booking profits in some sectors and move their cash into beaten down sectors. This trend is evident now as the index stays in a range while sectors keep churning. The trouble with sectoral rotation is that large investors are always at an advantage. They move first and buy low. Retail investors always play followers and enter when large investors are selling. What retail investors need to understand is that sectoral rotation is a ‘pure’ trading strategy. Long term investors must avoid getting trapped in trading rallies. Going short is another blunder to be avoided.

Every crisis leads to a clean-up. The opportunity lies in the clean up.


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