Monday, February 11, 2008

Bookkeeping: Slowly Beginning to Rebuild the 2 Indian Banks

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I had cut my exposure to the 2 Indian banks, ICICI Bank (IBN) and HDFC Bank (HDB) down to about 0.25% combined, as I have been quite wary of foreign markets for the past month. [Closing iShares Malaysia (EWM)] Remember, this was before "decoupling" was proven not to be that cool of a term after all. I wrote in mid January...

But I don't want to press my bets. A lot of "myths" have been busted of late. A couple of myths still left to be destroyed are "it is safe to buy Chinese stocks until the Olympics" and "emerging markets are safe havens". The latter is especially shocking - if you said that 5 years ago, you'd be laughed out of a room. Now it's conventional wisdom. This ties into another myth - that if 3/4 of the world's GDP is heading to contraction (US, UK, Western Europe, Japan) - especially consumer lead... that somehow the small sliver of middle class in India, China, Brazil will offset that. Hardly. So this leaves these markets a lot of room to fall.

Specific to India I wrote

I still have kept my India positions, but unlike the fall when I was very interested in this market since it was being ignored as US investors chased into any Chinese stock and ignored India [China v India the past 2 Months], I have pulled back my Indian exposure as well. Much like Malaysia, India has bucked the trend and its index was at all time highs in past few weeks. While I still like all these markets for 2010+ and believe this area of the world *IS* (and will continue to be) the next great growth engine over the coming decade(s), the very rich valuations more than support this view and once the myth of "decoupling" between emerging markets from developed markets is broken, we could be subject to a large sell off.

So this actually worked out to near perfection in timing. Sometimes you get lucky like that.

With that said, both these stocks have been demolished of late so I am now getting interested as both approach their 200 day moving averages. I am in no rush, since I don't like this market overall, but I am going to expand both position from roughly 0.1% to about 0.6% each (effectively moving 1% from cash to these 2 names)... much like Mastercard (MA) last week [Beginning to Rebuild Mastercard (MA)], I am going to use dips like this to slowly begin to rebuild positions in some of my long time favorites. But in very incremental fashion since I don't trust the market overall.

Technically, in a weak market it would be very easy for both stocks to break below their 200 day moving average - so this is why I am not in a rush, but with such sharp reductions (both have lost about a quarter of their value in a month) and my almost nil exposure I want to begin building now. I keep saying it's not a buy and hold market, and I'll keep repeating it. But we are getting some nice opportunities and values along the way.

ICICI Bank (IBN) peaked at $74 just about 30 days ago - while the US markets sold off these Indian stocks held up. It now trades at $54, or a 27% discount. Unlike the US banks chock full of financial innovation and in a saturated market, India is a whole different market. So I am going up to 0.6% exposure and if we can hold this 200 day moving average I would be more than happy to buy this sort of quality name in much larger quantities. I have done very well with this name in a NON buy and hold strategy - I was buying in the $41-$42 range in the first days of the fund and sold a lot in the mid $60s. Catch the top? Never. Catch the meat of the move. Definitely.



I've had similar strategy and success with HDFC Bank (HDB) and been able to book a lot of realized gains. The stock has dipped from $140 to $106 in about a month; a drop of 25%. So following the exact same strategy as above I am pushing this back up to 0.6% of the portfolio. If I can see this 200 day holding for both names, I'll be adding more. Again, I am probably not catching the bottom in either name, nor did I catch the top, but if I can catch the middle of a move a lot of the time I will enrichen my shareholders over the long run.



Long HDFC Bank and ICICI Bank in fund; no personal position


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