We know that there are cycles of different kinds that occur in the market. People have their own theories about what works when it comes to timing stock buys and sells.
Well, one of the cycles we have identified is what we call the Fertiliser-Budget cycle! Every year, almost like lemmings walking up to the top of the cliff, fertiliser shares have this upward cycle that begins around November and ends around Jan-Feb just ahead of the budget. This happens so unerringly that it cannot be just a coincidence.
We had seen the run up of some of the fertiliser stocks ahead of this year’s budget too and were just about to comment that with the budget over the prices should retreat. But then we thought of extending the research a wee bit to see if the pattern was consistent. More or less, most people know that fertiliser shares tend to rally ahead of the budget because there is always some hope that the govt would tinker with the policy. But nothing comes of it and prices fall off. This too everyone knows. Even we were aware of this aspect of the market. But how consistently this happens was something that we were quite unprepared to find!
We chose Chambal Fertiliser as a representative stock as it is well traded and has been around for the past 20 years and more. We then looked at the price action from November thru Feb. Until recently, budget was always last day of Feb. The consistency of a rise in this period was almost uncanny!
Across 20 years from 1999-2018, the stock price of Chambal Fert rose every single year with the exception of 2010. That is a 19/20 hit rate! Table attached shows the returns that one would have made if one had bought the stock around the November low (a couple of occasions when there was a more obvious bottom in Oct/Dec) and held it into the rally that generally culminated around Jan mid or later.
- The average return across 20 years was 39% and if one excludes the lone exception of 2010, then the return climbs to 43%.
- The highest return has been 104% in 2007 while the lowest is 12% in 2012. Even the worst return is nothing to sneeze at, for a 2-month work!
- On 6/20 occasions the stock clocked between 50-75% return
- On 10/20 occasions the returns were between 20-40%.
- Only twice was it below 20%. One instance of over 100% and one negative.
This incredible consistency makes us feel that Chambal Fertiliser is a NOT TO BE MISSED TRADE EVERY YEAR! It seems to be one of the surest ways to make money in the market every year without fail! And that too a sizable amount! The average trading volume per month during the period of Nov-Jan is more than 1.37 Lakhs