Show No Mercy On Stocks With Poor Set Of Num­bers

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The big­gest event that took place amid liq­uid­ity crunch dur­ing this week is the nine-hour meet­ing between the RBI and govern­ment of­fi­cials. In this marathon meet­ing, RBI's cen­tral board has de­cided to set up a com­mit­tee to as­sess the trans­fer of RBI’s sur­plus fund to the govern­ment. Fur­ther, the RBI will ask one of its com­mit­tees to look into the is­sue of eas­ing re­stric­tions on cer­tain state-run banks that are un­der PCA. This de­vel­op­ment would give some re­lief to the stressed PSU banks. Be­sides, the board also de­cided to al­low loan re­cast for SMEs. More­over, the RBI has de­cided to ex­tend the time­line for the full im­ple­men­ta­tion of Basel III norms by one more year, but main­tained the min­i­mum capital re­quire­ment at 9 per cent. This de­ci­sion to ex­tend time­line for com­ply­ing with Basel III norms would lead to re­lief of Rs 35,000 for the govern­ment, ac­cord­ing to credit rat­ing agency CRISIL. On the other hand, the global credit agency Moody’s be­lieves that this de­fer­ment of one year is a credit neg­a­tive for the In­dian pub­lic sec­tor banks.

In line with its aim of eas­ing liq­uid­ity cri­sis, the RBI will in­ject Rs 8,000 crore on Novem­ber 22 through open mar­ket op­er­a­tions. Af­ter hit­ting re­cent high of around $86 for a bar­rel in the month of Oc­to­ber, the crude oil is now trad­ing at $63 for a bar­rel, rep­re­sent­ing a fall of al­most 27 per cent. This fall in crude oil price has brought cheer to the in­vestors. Lower oil price is likely to ben­e­fit many sec­tors which use crude as their ma­jor raw ma­te­rial. The fall­ing oil prices and strength­en­ing of the ru­pee (re­lief for im­port of auto com­po­nents) might act as a cush­ion for auto mak­ers, who have just gone through the worst fes­tive sales in last five years. The over­all auto in­dus­try has wit­nessed a de­cline of 20 per cent YoY in the de­mand dur­ing the Oc­to­ber-Novem­ber fes­tive sea­son, ac­cord­ing to FADA. Be­sides, CRISIL has down­graded its growth fore­cast for the In­dian pas­sen­ger ve­hi­cles in­dus­try by 2 per cent to 7-9 per cent on ac­count of dis­ap­point­ing fes­tive sales and pil­ing up of in­ven­to­ries.

Mean­while, the rat­ing agency ICRA in its lat­est re­port has said that GDP growth for Q2FY19 is likely to dip to 7.2 per cent on ac­count of slug­gish­ness in agri­cul­ture and in­dus­try. In the first quar­ter of FY19, In­dia’s GDP had recorded a re­mark­able growth of 8.2 per cent in the same pe­riod of the pre­vi­ous fis­cal.

The sec­ond quar­ter earn­ings of the on­go­ing fis­cal came to an end. The buzzing stock, DHFL re­ported 52.46 per cent YoY jump in net profit to Rs 438.74 crore. As men­tioned in the pre­vi­ous FNI ed­i­to­rial, at the end, it is the earn­ings that have the power to drive the stock price in the long term. Just to give more em­pha­sis on this, we would like to bring to your attention that one of the big­gest wealth cre­ators (dur­ing 2013-18) HDFC Bank has de­liv­ered a CAGR of 25 per cent, and dur­ing the same pe­riod, its net profit recorded CAGR of 22 per cent.

“Sell­ing your winners and hold­ing your losers is like cut­ting the flow­ers and wa­ter­ing the weeds” is a very com­mon er­ror made by in­vestors as they treat some of their stocks too dearly. Thus, if you are hold­ing stocks that are re­port­ing poor set of num­bers, these stocks de­serve no mercy and they should no longer be part of your port­fo­lio. Be­ware and in­vest!

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