Macro wor­ries & mar­ket

Money Times - - NEWS -

The mar­ket of late shows signs of wor­ries and ner­vous­ness on ac­count of the ris­ing crude oil prices, weak­en­ing ru­pee, ris­ing in­ter­est rate and in­fla­tion, broad­en­ing of the fis­cal and cur­rent ac­count deficit (CAD) and of course the po­lit­i­cal drama wit­nessed ev­ery day. The broader mar­kets are volatile with a down­ward bias. Bar­ring a few stocks that have kept the bench­mark flags fly­ing, most stocks have dis­tanced them­selves from their re­spec­tive 52-week highs and are pro­ceed­ing to­wards the me­dian.

Is the macro sit­u­a­tion so bad that it war­rants such ner­vous­ness? Is the NaMo rally at Dalal Street, which started in Septem­ber 2013 reach­ing its con­clu­sion? The jour­ney of the Sen­sex that started from around 19000 has seem­ingly com­pleted its full cir­cle at 38000 in about five years now and fa­tigue seems to have set in thanks to the macro wor­ries. It is then worth­while to ex­am­ine what big in­vestors think and what strate­gies they adopt. This may an­swer a lot of the many posers and help small in­vestors from fall­ing into craters. “In­dian eq­ui­ties have run well ahead of fun­da­men­tals,” says a Credit Suisse re­port. Ac­cord­ing to the global fi­nan­cial ser­vices ma­jor, the val­u­a­tions of In­dian eq­ui­ties have stretched fur­ther largely driven by fi­nan­cial­i­sa­tion of sav­ings, im­prov­ing cor­po­rate earn­ings out­look es­pe­cially post GST and In­dia's rel­a­tive re­silience to a trade war with USA. "While we re­main pos­i­tive about the strength in cor­po­rate earn­ings, we be­lieve that the over­all mar­ket has run well ahead of fun­da­men­tals. We ex­pect sell­ing pres­sure to set in and ad­vise in­vestors to book profit in In­dian eq­ui­ties," Credit Suisse said in a re­search note.

The In­dian eq­uity mar­ket is the only ma­jor mar­ket to have seen an ex­pan­sion in price/earn­ings (P/E) ra­tio com­pared to all other peers (in­clud­ing USA), which ex­pe­ri­enced con­trac­tion in this as­pect. Given the higher in­ter­est rate, GST col­lec­tions run­ning be­low ex­pec­ta­tions, ris­ing crude oil prices, weak­en­ing ru­pee and fis­cal and cur­rent ac­count deficit con­cerns, the In­dian mar­kets may suf­fer some de-rat­ing in the near-term. The mod­er­at­ing do­mes­tic flows into mu­tual funds, which have been the driv­ing force so far, in­di­cate a creep­ing ner­vous­ness and if this per­sists, the down­ward jour­ney will gather speed. Global bro­ker­age ma­jor Gold­man Sachs cites el­e­vated val­u­a­tions, a po­ten­tial slow­down in eco­nomic growth and the up­com­ing elec­tions as ma­jor risks and feels that the In­dian stock mar­ket run is over. The firm has been bullish on In­dian stocks since 2014 and the mar­ket has nearly dou­bled since then re­turn­ing over twice that of global eq­ui­ties. “The risk:re­ward for In­dian eq­ui­ties is less favourable,” said its re­port dated 16 Septem­ber 2018. “The key rea­sons for our low op­ti­mism in­clude stretched val­u­a­tions, mul­ti­ple macro head­winds in the near-term and the elec­tion event risk,” it added.

Keep­ing these fac­tors in mind, re­tail in­vestors need to strate­gize their in­vest­ment moves. How­ever, the ad­vice of book­ing prof­its is eas­ier said than done. Book­ing prof­its at a time when stocks are 20-40% be­low their yearly/re­cent highs is a dif­fi­cult call to take. Re­tail in­vestors are hu­mans and at­tached to their stocks, the pur­chase price and the no­tional gains they’ve seen. It is eas­ier for Mu­tual Funds and inan­i­mate in­vestors, where the emo­tional quo­tient is low or nearly ab­sent, to book prof­its or exit from a stock. It is dif­fi­cult for small re­tail in­vestors to do so and they will have to

de­velop nerves of steel to ab­sorb such crushes. Lessons in dis­ci­pline in in­vest­ments and ad­her­ing to bit­ter de­ci­sions look so easy within the book but out­side in the real world, it is a dif­fer­ent ball game. How­ever, not all are pes­simistic. Mor­gan Stan­ley an­a­lysts have raised their Septem­ber 2019 tar­get for the Sen­sex to 42000, cit­ing broad-based earn­ings growth. They ad­vised in­vestors to hunt for un­der­per­form­ers rather than buy into stocks that have beaten the mar­ket.

Well, tough days call for tougher calls. Some may use the on­go­ing correction to off-load their po­si­tions while some may use it as an op­por­tu­nity to en­ter. Some may be right mo­men­tar­ily while some may be right in the long run. Since emo­tions rule the in­vest­ment world, it is rightly said in Gu­jarati, ‘Oon­cho nicho bhav ni safar nathi, Bhaavna ni safar che’.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.