Investors Should Avoid Taking Fresh Positions As Market Turns Bearish
Bears continued to rule the stock market and erode investors wealth as the BSE Sensex plunged nearly 1030 points since last Friday. With this recent fall, India has lost its place in the USD 2 trillion market cap club. Over the last week, Indian rupee continued to depreciate against the US dollar as it breached the mark of 73 to a dollar for the first time ever. This weakening of rupee triggered a massive sell-off by the FIIs to protect their portfolios from currency losses. However, this was not the end of investors’ pain as the crude oils' northward march added further woes to investors’ sentiments. The US sanctions on Iran led to disruption on the supply side, which is taking crude oil to new highs, and on Wednesday, Brent crude oil prices hit the mark of USD 85 per barrel, which was last seen in November 2014. Coming to the domestic issues, the default by IL&FS has rendered the investors sentiments fragile. Besides, the 10-year Indian bond yield is on an upsurge, and on Wednesday, it broke the level of 8 per cent, which was not seen since last four years.
During the week, the auto makers came up with sales number for the month of September. The numbers came in mixed as against street estimates and the dismal sales numbers could be attributed to Kerala floods and delayed festive seasons. In the car segment, market leader Maruti posted dismal performance with flat domestic volumes for September month. On the two-wheeler front, TVS Motor posted healthy growth of 17 per cent YoY for the month. Amid rising vehicle ownership cost due to increasing interest rate, price hike by auto makers and higher fuel prices, auto makers are likely to face challenge to accelerate sales numbers in the near term. Further, the recent mandatory long term insurance is likely to act as a speed breaker in the path of auto sales growth.
On Wednesday, the RBI’s monetary policy committee started its bi-monthly discussions to decide the key policy rates. RBI has already raised interest rates two times in a row. This time also, the market participants are expecting rate hike due to increased oil prices, weakening of domestic currency and anxiety on liquidity. At the same time, increasing interest rate in the United States along with the strengthening dollar are resulting in capital outflow from developing nations and widening of the current account deficit are likely to make the RBI go for rate hike for the third time in a row. If RBI goes for rate hike on Friday, then it would make India attractive for foreign investors as it will result in higher yield on debt. The rate hike would also ease inflationary pressures arising due to rising oil prices.
Moreover, on Thursday the Government of India cut excise duty on petrol and diesel by Rs 1.50, while the oil marketing companies (OMCs) will absorb Re. 1 cut. These moves from the government came amid rising oil prices and weakening rupee, which continue to overhang on government’s current account deficit target. This move would lead to adverse impact on OMC’s profitability.
On the valuation front, despite recent correction, the Nifty’s P/E multiple stands at 26.3x on Wednesday’s closing basis. This valuation is still out of the comfort zone as it is far higher than the average P/E level of 20.9x. Thus, we continue to maintain our stance and suggest our investors to stay put without trying to average any of the stocks in their portfolios and refrain from buying on dips any new ones.
Subscribers can send their feedback and queries on technicals portfolio guide to firstname.lastname@example.org