Silent but sig­nif­i­cant Di­wali!

Money Times - - -

The Supreme Court ban on loud and pol­lut­ing Di­wali crack­ers to curb noise lev­els could not have come at a bet­ter time. The In­dia econ­omy is un­der­go­ing a tough push-and-pull sit­u­a­tion and the sen­ti­ment at Dalal Street, too, lacks the fes­tive fer­vor. The weak mar­ket sen­ti­ment given the liq­uid­ity cri­sis in the realty and NBFC space and with mid-caps and small­caps eras­ing all the gains of the last cou­ple of years has wrecked the con­fi­dence of in­vestors. Di­wali this year may see some last minute fes­tive shop­ping but for in­vestors to wear a fes­tive smile at ‘Muhu­rat’ Trad­ing is un­likely. The gains wit­nessed on the bourses last week were ex­pected.

The Sen­sex and Nifty have lost to a lim­ited ex­tent thanks to a hand­ful of sev­eral weighted large-caps. Fine-tun­ing by the large-caps pre­vented the key in­dices from record­ing a fall be­yond 15% whereas in re­al­ity the Sen­sex could be around the 20000 level given the sharp fall in broader mar­kets. Last week’s rally can be safely termed as a mo­men­tary re­lief to in­vestors, lead­ing to a ‘Silent Di­wali’.

The spat be­tween the RBI and the Fi­nance Min­istry is no mean a worry. Deputy Gover­nor, Vishal Acharya’s, speech last week made a text book case for the cen­tral bank’s au­ton­omy. The is­sue emerged when fin­gers were pointed at the RBI for its fail­ure to mon­i­tor the ris­ing NPAs (non-per­form­ing as­sets) and fail­ure to adopt stricter pay­ments and set­tle­ment sys­tems. The ma­jor source of fric­tion is the gov­ern­ment’s com­mer­cial dom­i­nance of the fi­nan­cial sec­tor through bank­ing and in­sur­ance channels since it is al­ler­gic to a neu­tral reg­u­la­tory regime. The only way to man­age this sit­u­a­tion is to have more ro­bust ar­range­ments to over­come the dif­fer­ences.

The RBI has put 11 pub­lic sec­tor banks (PSBs) ac­count­ing for 18.5% ad­vances in March 2018 un­der lend­ing re­straints on ac­count of their high level of bad loans lead­ing to dif­fer­ences with the gov­ern­ment. This ham­pers lend­ing. But as long as the RBI can­not deal with PSBs as it did with Yes Bank, it is dif­fi­cult to fault its con­ser­vatism es­pe­cially af­ter its last at­tempt at diluting bad loan recog­ni­tion norms in 2008-09, which led to dis­as­trous con­se­quences. Last but not the least, in­de­pen­dent in­sti­tu­tions are val­ued and all democ­ra­cies rely on them. Lit­tle won­der, Pres­i­dent Trump is scream­ing at the US Fed­eral while ex-Pres­i­dent Obama held Alan Greenspan re­spon­si­ble for Hil­lary Clin­ton’s de­feat. Sack­ing Ur­jit Pa­tel or pro­vok­ing him to re­sign or curb­ing RBI’s au­ton­omy may trig­ger a mass ex­o­dus of in­vestors. The slide that will en­sue there­after will make the econ­omy’s cur­rent tra­vails look like a pic­nic! The gov­ern­ment should not con­tem­plate it even in its dreams.

Com­ing back to the mar­kets, it is cus­tom­ary to iden­tify some ‘Muhu­rat Picks’ with Di­wali around. With the cur­rent sit­u­a­tion be­ing so fluid and with most mid-caps and small-caps at their multi-year lows, in­vestors should fo­cus on growth-ori­ented and div­i­dend-pay­ing com­pa­nies. It may be pru­dent to buy se­lect stocks from sec­tors like in­fra­struc­ture, met­als, phar­ma­ceu­ti­cals,

I.T. and auto. The cor­rec­tion in small-caps and mid-caps may be near­ing com­ple­tion but time-wise, cor­rec­tion is still dis­tant away. Large-caps re­main a fa­vorite be­cause of their im­mu­nity to trig­ger a big fall. There­fore, in­vestors are ad­vised to make to­ken pur­chases of se­lect mid-caps and small-caps along with a hand­ful of large-caps. Do not buy stocks that dis­play high mo­men­tum and op­er­a­tor in­ter­est ei­ther up­side or down­side. Con­tinue your ex­ist­ing SIPs. In fact, it may be pru­dent to ac­cu­mu­late se­lect schemes in the cur­rent sce­nario. It may also be pru­dent to shift a por­tion of your port­fo­lio to debts to take ad­van­tage of higher in­ter­est rate re­turns. Go­ing for­ward, two fac­tors will de­cide the course of the mar­ket – (i) crude oil prices; and (ii) out­come of elec­tion polls. If crude oil prices rise to $100/bar­rel, it be­comes very dif­fi­cult to nav­i­gate the In­dian econ­omy. Po­lit­i­cally, the mar­ket is al­ready fac­tor­ing in a weaker BJP-led NDA com­ing to power. With NaMo’s wings clipped, the re­form agenda may slow down but clean gov­er­nance will per­sist. If a weaker ‘Ma­ha­gath­band­han’ of rad­i­cally dif­fer­ent ide­olo­gies comes to power, the coun­try will go through a lull and re­ver­sal of pro­gres­sive moves with the mar­kets reach­ing abysmal lows. It is a tight rope­walk for in­vestors this Di­wali to next. Hence, let the norms of safe nav­i­ga­tion rule ev­ery step of yours. May pru­dence guide us this Di­wali. Happy in­vest­ing!

Now fol­low us on In­sta­gram, Face­book & Twit­ter at mon­ey­times_1991 on a daily ba­sis to get a view of the stock mar­ket and the hap­pen­ings which many may not be aware of.

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