Make Money in the next BULL RUN! Investing in Stock Market

>Economy or business goes in cycles. Recession and booms have always visited us alternately. Now that we have landed in a recession, probably the deepest since the Great depression, probably many out there are asking themselves the qeustion that I have been asking : How to benefit from the bull run (or a bubble?) that will follow this recession?

There are two main puzzling questions.

1. When to invest? We do not know how long this recession is going to last. You can read comments and predictions by experts, but then experts are always good at explaining things after they have happened, rarely making quantitative predictions :)
   
2. What to invest in? after early 90's recession, there was a IT boom, after Tech crash of 2001/2002, there was a real estate boom/bubble. Now whats next?

When to invest?

It is virtually impossible to predict right now with certainty how long the current crisis and its effects will last. But what we can do is keep watching for change. Once we observe some "DEFINITE" signs of improvement of economy, we can be sure change has started taking place. We are now, (perhaps you should add the word MAYBE), ready to wait for the next bull run. So what are good financial indicators? Here are some

1. Index of Industrial Production or IIP: This is a clear quantitave indicator of how well the industry is growing. Watch out for these numbers. Good IIP numbers will be a signal for "START INVESTING NOW". Remember, IIP data for a month must be compared with previous month in the same year rather than the previous month itself. And just one good number may not be a sure sign. What i mean by good IIP numbers is consistently growing IIP numbers for a stretch of couple of months.
2. Quarterly results: There are also a good and definite indicators. Dont worry or feel left out if good quarterly results increase stock prices and leave you with the feeling "oh damn, i should have invested a month ago!". Remember a good healthy bull run lasts for a year or two at least. So better be late by a quarter than be early by a couple of years !
3. Inflation under control. As far as India is concerned this means annual inflation of around 5%.
   

What to invest in ?

This is a tricky question. We can never know what boom will be next. Real Estate again? or Power? or Ethanol maybe? who knows! But remember, as long as it is a healthy economic boom and not just a 100% bubble, it will always lead to flourishing of one or all of the following sectors.

1. Steel: virtually all manufacturing requires steel. So any industrial boom is going to benefit Tata Steel, Sail, etc. Conversely, a recession hits steel hard. Thats why in a downward cycle, the steel stocks get hit very hard. Check out Tata Steel, Sail and global giants like Arcelor Mittal. They are trading at 'mouth-watering' low P/E ratios. But mind you, they are not really undervalued, because their business is actually going to get hit. So this is one sector to keep in mind for investing once we get hits of a bull run. Revisit this blog when you start having that feeling and check out for actual numbers.
   
2. Retail: If a boom leads to increased salaries of a portion of the population, you see a boom in retail industry. Pantaloon Retail (NSE code PantaloonR) is a stock to watch out for. Hope it is not overpriced then, as it is now.
3. Brokerage houses: Any bull run leads to a rush of investors and the brokerage houses invariable benefit from this. Watch out for Motilal Oswal, India Bulls, and other brokerage stocks.

Other less obvious investment options are companies like Praj Industries. In any healthy economic activity, the demand for crude is going to increase. Although the crude is very low priced at this point, the crude oil levels of the world are at low levels. Unless we discoveries of new huge crude oil reserves, the next boom is going to hasten the need to alternative fuel. Ethanol or BioDiesel definitely stand a chance to get serious attention amont other things. Praj industries has the potential to emerge as a global leader in this area. You may also consider other companies benfiting from high oil prices, e.g. ONGC.