As we have clearly understood the impact of price hike on some of the sectors, let’s define the rules of stock picking so that we are able to generate profit in short and long term. General strategies to be followed are:
1. Just at the outbreak of the news buy into good oil marketing companies. Historically speaking, there is practically nil probability of losing money in short to medium term if you follow this strategy.
2. Once the news settles you can buy into good banking and auto stocks as they will be available at attractive prices due to knee jerk reaction. Hold them for short to medium term for desired returns.
3. Investment in companies producing alternative fuels is a high paying long term strategy. One of the best examples is IGL which I have mentioned above. So if you are a long term investor you should include such companies in your portfolio.
4. For cement and steel companies, you can follow the same strategy which is described in point two above. Once the news settles and companies are able to pass their cost to consumer by increasing product prices, stock value will adjust upwards in medium term.
Feeling of helplessness is just a feeling if you are smart investor. There are hidden opportunities in both bad news and good news. If you know the art you can paint the picture even in times of turmoil. So enjoy the price hike.
What are IPO’s?
If you trust in economics as subject then be sure that fuel price hike normally enhances the pace of economic growth and increases efficiency in whole system
What happens at the background when there is a price increase?
There are many possible responses to rising fuel price but the most noticeable once are:
1. Reduction in long term fuel consumption – People start opting for smaller and fuel efficient vehicles. Emphasis shifts towards using alternative fuels.
2. Increase in fuel efficiency – Auto companies tries to increase fuel efficiency of the engines using technology.
3. Decrease in travel kilometers – People do careful planning for travel as it’s a costly affair now.