NIFTY View October/September 2018

Hello Investors,

Its been long I haven't updated blog but I have been sharing my views to all my followers and subscribers over Whatsapp. 

Coming to the point, what the hell is going wrong with Indian Stock Market??? 

Those who are tracking it regularly must be aware of the situation as even a well managed portfolio must have taken a hit by atleast 10-20% (even if the portfolio is having strong fundamental large-cap stocks). Even those who doesn't have any interest in stock market must have noticed regarding the situation; as in last one month, most of the newspaper had Headlines of NIFTY Cracking and the unmatched volatility that has been encountered in Indian Stock Markets. 

FIGURES: The Nifty benchmark is at 10030 levels, down from 11738 levels by almost 15%, where most of even bluechips are at 52 week low price. Nifty has eroded almost all the gains the index delivered in last 1.5 years, where Nifty hass already been tested twice earlier.



Let me tell you, if you have done enough research before investing, you need not worry if you have patience. Lets encounter the problems Indian Markets are facing and lets check how big impact can we see overall. The key points that has dragged Indian Markets are following. What are the past events that are hammering markets and what are the future events that has the ongoing impact in current markets sorted with the weigh of the events.

1. IL&FS Default Rating
2. Weakening Rupee.
3. FII's selling.
4. Trade War globally.
5. Earnings of Sept 2018
6. 2019 Elections.
7. Assembly Elections.

IL&FS Default Rating:

          Infrastructure Leasing & Financial Services (IL&FS) is an unlisted infrastructure lending giant with over 150 subsidiaries, has been making headlines of late for all the wrong reasons. The company’s debt was downgraded over the past few weeks for default of interest to its bondholders. What does this mean at ground level? Company is facing a major issue of cash crunch. The cash crunch and debt pile-up being faced by IL&FS, has led to concerns about risks in the entire non-banking financial sector, a fear that spooked markets all of last week.

One may ask, how does one company impact stock market? Question is quite genuine but we need to penetrate a little deep before we make any decision. 

IL&FS Promoters and Shareholders:

LIC, with a 25.34 percent stake in IL&FS, is the largest shareholder in the company. Orix Corporate, Japan with a 23.54 percent stake is the second largest shareholder. Other large shareholders include Abu Dhabi Investment (12.56 percent), Housing Development Finance Corporation - HDFC (9.02 percent), Central Bank of India (7.67 percent) and State Bank of India (6.42 percent).

Now if such high levels promoters are involved and if they are unable to foresee the outlook of the company, the management is quite questionable. The issue here is surely the mismanagement by the top officials. This still doesn't answer why does one company play huge role for downfall. 

Investors are also aware of the bloodbath in 2 main stocks in last 1 month, DHFL (Dewan Housing Financial Ltd) and IndiaBulls Housing. Reason here is that banks and mutual funds are main sources of funding for housing finance companies and other NBFC's. Banks contribute 40% of the funding and mutual funds contribute 30% approximately. 

Sectors affected: The impact of IL&FS has already been seen in major NBFC's, discounting stocks by 30-50%. Also the Liquid funds which are considered as one of the safest bet in any of the volatile market. Other stocks which might face an issue is core Banking stocks, as they have their stake in IL&FS.

Mutual funds, in particular, have become a key source of short-term liquidity, with estimates suggesting that NBFC commercial paper borrowing have gone up three times since March 2016, with MFs now holding almost 60%. With the liquidity situation tight in September due to factors like advance tax outflow and rush by banks to meet targets, problems for NBFCs compounded as mutual funds too looked to cut exposure to the sector. Market estimates suggest mutual funds have around ₹2,000 crore exposure to IL&FS. Now with such high exposure, mutual funds are staring at huge loss in coming years. 

Future Outlook on Situation:

LIC has made it clear, it wont let collapse IL&FS and will take all the necessary steps. But I personally feel, I don't see any chance reviving IL&FS soon. The company has seen the clear case of mismanagement. The company wont be able to generate regular and enough cash from its assets until next 3 years looking at the liquidity situation and the slowdown in Infrastructure industry. According to me, this dip is a GREAT OPPORTUNITY to buy in quality PSU Banks. And when it comes to quality PSU Bank, I prefer just one Bank, SBI, which is trading at Rs 250 levels. Its one of the most undervalued bank of all-time.

 

Weakening Rupee:

          
            Well, we all know what means when Rupee is weakened. Its a clear indication of Indian economy weakening. Well, yes each and every currency is depreciated but Indian Rupee has weakened the most in last few months. The direct impact is seen in the company's earning and thereby impacting various sectors. 

Stocks to Focus: 

Due to the falling rupee, major sectors to benefit are software giants which have their operations abroad. And also top pharma companies whose revenue are generated from US economy.
A weaker rupee will affect companies with higher dollar debts, capital-intensive sectors, firms with foreign currency borrowings and those importing raw materials heavily.

FII's Selling:

       
           Foreign institutional investors (FIIs) have given Indian capital markets a big thumbs-down this year, withdrawing Rs 90,746 crore so far, the highest ever. Interest rate hike by Federal Reserve and a falling rupee led the FIIs out of the Indian market.Now FII's have been selling since last 9-10 months. That hasn't halted any rally that Indian markets saw in that time span. It is just because of the sudden meltdown, analysts are seeing it as one of the reason for Indian economy downfall. Yes, FII's selling is negative, but we also need to understand that nowadays DII's have also became more active in pumping in money whenever FII's draw out their funds. No doubt, DII's has still a long way to go to match FII's but yes, they are on its way. And also not to forget, mutual funds and investment through SIP is at all time high. One main reason for this development is awareness created by the present government. 

Stocks to Focus:

NBFC's in last one year has seen quite a rally but all the NBFC stocks has already wiped out all the profit in matter of one month. According to me, FII's will pull out the money further from this space and also from the real estate sector, majorly because of the increasing Defaults on the Loans taken by the companies. Also, the private banks might stare at correction as FII's has the most investment done in these 2 sectors.

Global Trade War:

      
              Well, whenever countries fought, firstly it used to be a War, then came Cold war and nowadays its Trade War. Trade War is a situation in which countries try to damage each other's trade, typically by the imposition of tariffs or any other duties. This helps in bringing the imports down., which inturn helps the countries economy. Now, for creating jobs in US, Trump has started a major excise and tariff hike on all the major imports from China. If these things prevail, even India will suffer as Trade war is a global situation and not just in between 2 countries. No doubt, India's economy majorly depends on domestic consumption, so according to experts, we dont see huge impact. Minor impact on economy cannot be denied. But as I see, my view is that; being an ally to US, we do have a good opportunity even in the trade war. Research also reveals, that India can capture the Chinese commodity market vacated by US exports in the face of the higher import duties Beijing has slapped on them. In fact, the study has analysed and identified at least a hundred products where India can replace US exports to China, which totalled around $130 billion last year. Lets see, how Modiji world tour come to India's help as this is very much situation where India can take the benefit of its allies.

China has an increasingly widening trade gap with India. It is easier to export our surplus agriculture products to China than manufacturing products.

In the last fiscal, India's exports to China stood at Rs 86,015 crore, while Chinese imports totalled Rs 4.91 lakh crore. In other words, the trade deficit was well over Rs 4 lakh crore.
The products where US exports to China overlap with Indian exports are of particular interest. For instance, fresh grapes, cotton linters, flue-cured tobacco, lubricants and chemicals such as benzene, are a few lines where the value of US exports to China are pegged at above $10 million. India, too, exports these items to China. There is scope to increase our exports in these products because of the tariff differential and the substantial demand in China. The good news for India is that while China has imposed tariffs of 15-25% on these goods coming from the US, other countries are subject to only 5-10% duty - the most favoured nation (MFN) rate applicable for members of the World Trade Organization. 

Earnings of Sept 2018:

          Companies has started posted financials of last quarters and most of the companies are expected to report muted numbers, mainly because of the Increase in Crude Oil price. Due to the price increase in Crude oil, the purchase of raw materials for most of the companies is set to rise, finally affecting the profitability of the company. The best thing about this is the timing. Results posted by most of the companies are above par and that's suppose to keep the market healthy. There are many companies which have already been trading at very very cheap valuations. And this in indeed a great opportunity to Grab those Gems. Shah Stocks has already started evaluating those results and giving the Stocks for Investment with brief reporting.

2019 Elections:

          MOST Important Factor today which is driving Stock markets is the fear of  2019 LokSabha elections. Indian voters will go to the polls in less than a year’s time to elect the next Parliament. While current Prime Minister Narendra Modi is favored to make a comeback, analysts say it will not be a cakewalk and at best he would return in a much smaller mandate. And I agree to that too. There have been many MAJOR transformations done in last 5 year Term, which are indeed great for India's future but sadly the execution part was really tiresome and also the time span in which this happened was too fast. 

          

           If you check the ground reality, the markets are slowed down and I am able to tell it because I have close aide with retail market. I have been taking feedback from almost all type of retail industry. Business has taken hit of at-least 30% according to the survey done by me in various areas. What this means is spending capacity of people has decreased and people have been conservative in spending extra money. Due to this, many business people/retailers have been furious regarding the steps taken by current government. Problem is the benefits that the people are supposed to get by implementing this major transformations is still overdue. This will make road for current government a little difficult than it was earlier. But still, one  more reality is that people are willing to give one more chance to current government to prove its potential. Also there is no appealing face in the opposition who could attract the people and the truth is still that Narendra Modi is one of the biggest Crowdcatcher in the whole Political history of India. 

Question is should it impact the stock markets? Well, whats happening is people are afraid to infuse anymore money now as an investment purpose. Right now, people would like to wait how the euphoria turns out in coming months and only after being sure, they will invest. Investors have a great way to be sure regarding the upcoming elections. ASSEMBLY Elections coming in November 2018 will be a great way to find out what people wants in next 5 year term.

CONCLUSION:

               The  major verdict that comes looking at all the current matters, is that market might remain choppy in coming few months, but there will be great opportunities to invest which shouldn't be missed. 

TO DO:

              The quarter results which will be posted and this month has to be tracked very carefully to reshuffle the portfolio. Check the earnings of all the stocks held in your folio and reshuffle if necessary.
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