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There is a big debate going on whether to invest in this market or not at this time. People are speculating on the both sides and are justifying their opinion.

We do get calls, emails and also while meeting people they do want to know our opinion on the market. Firstly, we do not invest in the business looking at the market. We bought Mindtree when market was trading at 5800 and we have managed to get striking returns compare to market on our investments.

The first biggest mistake investors do is by treating stock market like a ‘lucky dip’. They are happy to buy at higher levels once convinced with the idea of next big up-wave is ahead and expose their investments to high risk.

Smart investor reduces its risk associated by buying quality companies. They understand that while buying stocks they are buying those businesses that employs staff, borrows money, generate earnings from one or core business activities and pay dividends.

So unless you are a day trader, buy companies based on quality fundamentals not share price momentums, and avoid low quality businesses displaying little opportunity of growth.

Here is what we found few opportunities in the oil exploration and production sector in the peak market. We scanned six businesses (Aban Offshore, Cairn India, GOL Offshore, Hindustan Oil Exploration, ONGC and Oil India) for quality fundamentals and found three businesses to consider.

Cairn India

A1

ONGC

A2

OIL India

A2

From the above list two businesses are trading at discount even today in regards to 2014 valuations.

Estimate IV for 2014

Estimate IV for 2015

Cairn India

Rs 558

Rs 556

ONGC

Rs 252

Rs 339

Oil India

Rs 500

Rs 624

If we pull up the summary of performance and valuations then they look like this:

Cairn India

Quality

Performance

Value Prospects

Margin of safety

A

1

63%  (Past)

-11% (Future)

43% (2014)

ONGC

Quality

Performance

Value Prospects

Margin of safety

A

2

-30%  (Past)

11% (Future)

-12% (2014)

Oil India

Quality

Performance

Value Prospects

Margin of safety

A

2

-6%  (Past)

2% (Future)

9% (2014)

This is how we interpret this summary, quality and performance as you all know that we believe A1, A2 and B1 are investment quality. Value prospects are divided into two parts, past, that reflects whether intrinsic values have grown or have fallen down from last year and future where what growth in values to expect. Lastly, margin of safety that tells us whether we are getting any discounts or is it trading at premium.

We would like to know which one you will prefer to buy from the above list. Meanwhile we will share our pick from the above list in our next blog post in detail.