·
BSE Sensex fell 1625 points (5.9%) on 24th
August 2015.
·
Indiex has not fallen more than 5% in a single
day since 2009.
·
This is Sensex BIGGEST ever fall in absolute
terms and 27th largest fall in percentage terms.
·
Going by past trend, every big fall is followed
by a bounce back within next 3 months.
·
How do we compare the market fall in 2008 (Sub
Prime) and in 2015 (Chinese Scare)
o
In 2008 the fall was drastic and painful
o
In 2008 the sensex ran up from 14000 point to
21000 points : 50% run up between Jan 2007 to Jan 2008.
o
The fall in 2015 has been gradual. Just before
crash, sensex was 28000 points and now it is 25000 points.
o
In 2008 Sensex was trading at 25 FPE, but in
2015 it is at 15.3 times. Sensex long term average is 14.5 times PE.
o
In 2008 sensex fell from 21000 points to 7700
points in just 9 months.
·
Given relative low valuation, the sensex could
fall to a maximum of 22500 levels (another 10% downside).
·
Lots of positives in 2015:
o
RBI has a forex reserve of US$ 350 Billion :
Could use upto US$ 20 billion to defend rupee if required.
o
Falling Oil Price.
o
Falling Import bils.
o
Falling Fiscal deficits.
o
Removal of Petrol / Diesel subsidy.
o
Ability to reallocate funds for public welfare
like : Universal Insurance and Banking.
o
Thrust on Infrastructure.
o
Transparent auction of Natural resources like
spectrum and Coal.
o
Direct transfer of Benefits in Public
Distribution and LPG
o
Indian exports @ 15% of its produce Vs 30% for
Chinese.
o Investing now could be rewarding over the next
18M to 24M
o For market to bounce back strongly, we need ‘series’
of good news – which is unlikely – China is like to keep bothering along with Europe
etc.
o In the BRIC (Brasil, Russia, India and China)
nations, all except India are facing challenges.
o
Russia is commodity driven (oil). Hence lower
crude is likely to create serious problem.
o
Brasil – again a net commodity exporter has been
downgraded to JUNK status recently
o
And Chinese problem is widely read now.
o Apart from Brasil, Russia and China all other
countries like Japan, Middle east, Taiwan, Korea, Malaysia are all having hand
full of problems.
o Hence India with above mentioned positives is
likely to attract lots of investments from FII’s.
·
Given the positives, few concerns about India
are:
o
Monsoon woes – Right now we have received 12%
below monsoon. But it is not in our hands. So no meaning worrying about it. It
is out of control.
o
Reforms at Slow phase. With failure of Govt to
pass on key legislations like Land bill and GST in Rajya Sabha – many feel it
could be a dampner. But this is very much in control and the people in power
know to how to get things done. So, let’s not worry about it.
o
RBI’s reluctance to cut interest rates. The RBI
governor will be concerned about the monetary policy than the stock market
policy. And no one can guess what is in his mind. So, let’s leave it to him.
o
FII inflow in 2015, till August has been
Rs.33,000 Cr Vs Rs.97,736 crore in CY2014. But CY2014 was an election year.
Hence lots of funds flew in anticipation of a historic verdict. With limited
options to invest world wide, India will remain one of the few choices for FII’s
to invest.
o
Hike in
US FED Rate : It is imminent. The only question is whether to hike it now or
later. And it is more like having the first dip in cold water. Once the first
hike is done, people will get used to it. Not to be denied that the rate hike
could result in funds moving out of India. But, as mentioned in previous point,
India remains one of the obvious choice for investments for next couple of years
atleast.
·
Outlook:
o
Next few months could be very volatile. Hence
Hang on to your investments and keep investing in smaller lots.
o
Next 12M to 18M could be rewarding for
Investors. Since the excess (From 30000 points to 25000) has been shaved off,
markets are currently attractive. Even if market bounces back to 30000 points,
you would make 20% returns. That’s Cool.
o
Investment Strategy:
§
Choose sectors that benefits from fall in Rupee:
Like Pharma and IT.
§
Invest in Domestic Consumption story companies,
since fall in commodity prices like Oil could increase purchaseing power
§
Invest in Consumer facing businesses like FMCG,
Paints, Consumer Durables and Automobiles.
§
Avoid commodity sector like metals, oil etc.
§
Manufacturing sectors may not be rosy since
cheap imports and challenging exports could affect them.
§
Avoid PSU Bank’s – due to elevated Non
Performing assets.
§
Be cautious in Private sector banks – since 2
new banks : Bandhan and IDFC along with dozens of Payment banks to challenge
existing pvt sector banks on retail loans etc. Private sector banks may
underperform in next 6M to 9M.
The
BEST RETURNS are made only when investments are made during TOUGH TIMES.
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