Not in a hurry to turnaround……

Slow TurnaroundThe Indian stock markets which had an euphoric rally in 2014, turned down in 2015 and is looking to have another negative year in 2016. Price increase in stocks are always backed by earnings growth, and when earnings show a slowdown, price moves either get flat or decline based on the interests each individual stock has built in it.

In 2014, earnings growth was very good and it supported the price increase following which expectations got higher and it fuelled the valuations to get a little bit stretched. Once the reality set in to show that the expectations were wrong, rather it was in fact the other way around, a slowdown in the growth rates, investors were in for a surprise. All of a sudden all the buy orders became sell orders and hence the larger fall we have had in the markets post Chinese market crisis.

Automobile companies which were leaders in 2014 began to slow down on their growth. Infrastructure restructuring which was expected to be big and to support the banking sector, has been taking more than the anticipated time to get on the roads. New sectors that began to show strength were NBFC’s and Pharma along with export based businesses. Each one went on to face its own challenges. As spending declined, which has been shown in the top line growth of the Indian businesses in their December financial results, with sales growth in the lower single digits and profits showing an increase which means, companies have resorted to controlling operations to increase profits, which is also a negative in a growth story. Controlling operations expenses cannot continue for a long period. Without sales growth, it will bring in more challenges. This facilitated the weakness in the NBFC sector. USFDA played the devil’s advocate to pharma companies, big names in the Pharma space began to fall like nine pins. Between 20-30% drop in prices of stocks like Dr. Reddy’s Cadila, Cipla etc.,

Exports sector went into a different challenge, external forces played against them, all of a sudden they become un-competitive to their markets following the devaluation of Chinese currency. Orders began to slow down and some of the prominent stocks have lost more than 50% from their peak price.

With big time damages done to the markets, Indices Nifty and SENSEX breached their near term supports and turned bearish. Within few months what was the world’s best economy became the opposite. Now, it will take a little longer than anyone could guess for the markets to turn around. Government through its next arsenal, “THE BUDGET” looks like not to give any big fillip, with just a couple of days for the budget, markets don’t show any kind of strength. Next triggers can come only from the Q4 results, which already shows weakness as banks like SBI have announced that, they are going to show more bad loans in their books.

The best way to approach the market at these troubled times is to wait on the side lines, ready with funds to take the next opportunity early on. In our portfolio for our clients, we have liquidated most of our holdings baring very few best performing stocks like Bajaj Finance, Pidilite etc., Being invested in short term debt will help our capital grow at nominal rates till the next opportunity arrives. In Equity investing, if we deploy this method of getting in when the markets are strong and out when it is weak, it is possible to outperform the benchmarks over a longer period. Hence, again it gets proved that, buy and hold will not be the best strategy in Equity investing. It can only give returns to the extent of that which is got from FD’s. Rarely one can find stocks that have given super normal returns on a continuous basis for decades.

Take a look at your portfolio and do a churn of holdings wherever required and be in cash to take the next opportunity.

Road on the DStreet to get bumpy in 2015-16

Broad markets tanked more than 6% in the month of March. The correction in the markets that were expected in December 2014 stretched and started off in March 2015. Corporate results for Q3-2015 were not as per expectations. Don’t know if the expectations were very high or companies did not have the opportunity to perform. Following such results, Q4-2015 is also expected to be an under-performer.

Banking stocks took a big hit as NPA’s began weighing on their stock prices. Apart from those stocks that have strong fundamental support, others have started their downward journey. Now, we reach a level where, “Buy anything and it will raise” thought requires a re-think. From here, stock selection will need importance, to have good performance.

We have closed the month of March 2015 with near 3% profits as against 6% loss on the SENSEX. This performance was possible due to our portfolio concentration in Electrical appliances and Pharma Sector which were star performers for March 2015.

Regular churning of the portfolio has helped us be in the right sector at the right time, which has helped us get the best outcome on performance.

Performance Comparison
Index NSE 500 BTT
Open 7281.85 1613.38
Close 6798.15 1655.63
Gain/Loss -6.64% 2.61%

Road to get bumpy.

Volatility Index shows near 60% drop in its numbers, markets likely to give 40% lesser returns that what it gave in 2014-15.

Gold is not an investment always and it has showed the same with a continuous decline for the second year. Gold has to be purchased only for consumption. Having it as an investment will not meet inflation.

Mutual Fund exposure getting more than double is a sign that retail participation has come into the markets. This will keep the momentum high for the next year.

3 out of the BSE Top 100 and Top 500 stocks listed in the image above are in our portfolio and they have contributed to considerable profits in 2014-15 for us.

Auto – Ancillary was the prominent sector in our allocations. We don’t have any exposure in the top losing sectors.
Good news is that we don’t have any of the Top losers in our portfolio. All of these contributed in our robust performance.

We look forward to continue with similar outperforming returns in our portfolio in 2015-16.