Time To Go Bot­tom-Fish­ing In Fun­da­men­tally Strong Stocks

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Un­like last year, In­dian stock mar­ket bulls have failed to wel­come Sam­vat 2075 with arms wide open. Mar­kets in 2018 have wit­nessed one of the worst per­form­ing Oc­to­bers, which is to a cer­tain de­gree akin to that of 2008, be­ing si­mul­ta­ne­ously im­pacted by do­mes­tic and global events. Nev­er­the­less, the bulls have been striv­ing hard since Oc­to­ber-end con­vey­ing to the in­vestors that the worst is over, at least for the time be­ing and, there­fore, they can start av­er­ag­ing their stuck po­si­tions at the cur­rent lev­els to re­cover pre­vi­ous losses. But be­ware of av­er­ag­ing only by judg­ing the Q2FY19 re­sults. Why so, be­cause mar­kets are yet to wit­ness the im­pend­ing do­mes­tic events and di­gest the on­go­ing weak global cues. The vul­ner­a­bil­ity has in­creased to such an ex­tent that any un­ex­pected event can turn back the mar­kets for the worse.

The de­pres­sion in the mar­ket started off with the Union bud­get in Jan­uary, drag­ging the mar­kets down by 11% within two months. The re­vival in Q4FY18 re­sults, fol­lowed by the coun­try grab­bing the top po­si­tion in eq­uity mar­kets among other emerg­ing mar­kets, brought about a bounce-back in the mar­kets. Fur­ther, the GDP growth pro­jec­tion inch­ing up to 7.4% raised the op­ti­mism in the mar­kets. The ex­pec­ta­tions of favourable mon­soon for the third con­sec­u­tive year kept the mar­kets go­ing till July 2018. How­ever, the whole of Au­gust 2018 up­move, breach­ing the prior all-time highs were pulled off by stock-spe­cific or sec­tor-spe­cific moves, while the prices and val­u­a­tions of all other stocks had been ex­hausted. The in­ter­est rate hikes by the US Fed, fol­lowed by the two con­sec­u­tive hikes by the RBI in June and Au­gust amid ris­ing in­fla­tion, kept the dol­lar-dom­i­nated stocks el­e­vated, but brought about cor­rec­tion in oth­ers. By that time, crude oil prices had wit­nessed a bounce-back and the ru­pee was in the pre­lim­i­nary stage of de­pre­ci­a­tion dur­ing Au­gust 2018 when the mar­kets wit­nessed tremen­dous volatil­ity. The sell-off by FIIs and do­mes­tic MF houses, specif­i­cally in mid-cap and small-cap stocks brought about a huge re­treat in the mar­kets. The Kar­nataka elec­tions proved to be a cat­a­lyst in the dis­rup­tion of the up­side rally. The un­earthing of the PNB bank­ing fraud, fol­lowed by the NBFC cri­sis and widen­ing of the fis­cal deficit, dragged the mar­kets fur­ther down, eras­ing all the gains of 2018. In-be­tween all these events, the trade war an­nounced by Trump specif­i­cally tar­get­ing China, had been hit­ting hard on the global mar­kets--and the war is still on.

Com­ing back to the cur­rent sce­nario, the bet­ter-than-ex­pected start to the Q2FY19 re­sults may have led to some bot­tom-fish­ing in a few stocks. The ex­pec­ta­tions of over­all im­prove­ment in cor­po­rate earn­ings have helped the bulls pre­vent the bears from fur­ther dom­i­nance. Mean­while, the cor­rec­tion in oil prices amid the rise in US in­ven­to­ries and Saudi Ara­bia’s as­sur­ance to ex­clude oil from the re­tal­i­a­tion list halted the ru­pee from fall­ing be­low 74.49. Lately, what came as a saviour to the crit­i­cism faced by the BJP on the eco­nomic front is the surge in In­dia’s rank­ing in ease of do­ing busi­ness by 23 places in the cur­rent year and 53 in the last two years to be ranked at the 77 th place. The fact that the coun­try has im­proved on 6/10 pa­ram­e­ters has cre­ated some hope for a BJP win in the up­com­ing state elec­tions, fol­lowed by the Gen­eral Elec­tions in 2019.

The mar­kets have not con­firmed any bot­tom-fish­ing so far, though the ma­jor in­dices are trail­ing above their cru­cial lev­els. The sanc­tions on Iran sched­uled to be im­posed in the cur­rent month would de­cide the fate of crude, ru­pee and the mar­kets. Fur­ther, the op­po­si­tion par­ties will grab ev­ery pos­si­ble op­por­tu­nity to put the BJP in the dock. For in­vestors, we main­tain our view on av­er­ag­ing or en­ter­ing at the cur­rent lev­els in stocks hav­ing ro­bust earn­ings growth and stable man­age­ment. Other­wise, stay tight is what we can sug­gest, for now. Traders can restart with po­si­tional trades as volatil­ity has di­min­ished to some ex­tent. In­tra-day traders can earn hand­some re­turns with most stocks giv­ing good liq­uid­ity, vol­umes and con­sis­tent moves with less volatil­ity/lethargy. Sub­scribers can send their feed­back and queries on tech­ni­cals port­fo­lio guide to fnied­i­[email protected]

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