Market a cycle of optimism and pessimism: Sukhani

I will just confine myself to one part of the stock market that is how do we invest and how do we trade? Whether we should at all invest or trade?

Markets go through cycles of optimism and pessimism, when we are optimistic we are optimistic we to extremes. SKS Microfinance at Rs 1300 was wonderful and you had to buy it because tomorrow you may not get it. Suzlon at Rs 600 was fantastic, if you didn't get it now you would never get it and Bajaj Hindustan at Rs 550 was a dream, you had buy it now or you never buy it, it would never come to Rs 550 but we know what happened to these stocks.

So we also know that these cycle of optimism go to extremes. On the other hand pessimism has its own extreme. So my sense is that we have completed a cycle of pessimism, essentially a bear market and we are now entering no matter how bad the news is, we are now entering a cycle of optimism.
So what do you do. If I think that the markets are going up then you identify themes. You say these are themes that are likely to outperform. For example PSU banks, I think they have completed a cycle. They have come back from a bear market and they are bottoming out and in fact PSU banks were identified four years ago and they did very well. The time has again come to look at PSU banks that is the theme. You buy PSU banks and i will explain what you do with them. You don’t invest in them; you buy them for a different purpose to profit out of them.

Midcap IT is a theme. Largecap pharma will become a theme, it is overpriced now, it is going through a correction when it finishes that correction it will become a theme. At some point capital goods will become a theme, it is already developing and becoming like that. So, you think of a theme and then you say I am going to buy now but that is only one part of the story. The second part is that you have to exit, you cannot say I have bought and now I am going to hold on to it and I don't know what to do about it that is absurd. You must have an exit strategy. All themes require an exit. You must say this is the point at which i am taking profits and getting out.