SBI reporting Loss & the Message it Sends…

SBI reporting loss in its December 2017 results after 17 years of profits was a shock to the markets. At a time when the markets are giving off gains made in the previous year, worries arise in the minds of investors when big names bring shocks.

Indian stock market had a great run last year supported by all the external factors like Geopolitics, environment, climate, Government spending, etc. The only non-support area was companies yet to show profit growth in their Balance Sheets.

In this condition, loss reporting by SBI, brings uncertainty on the profit growth of India’s businesses. Is the low or negative growth only in one company, sector or is it in the whole economy? Knowing this will help us take decisions on whether to be invested into the markets, add more or stay away.

2229 companies have reported Dec 17 results so far. Among them sales has grown by 5.24% & profit growth was 12.31%. Clearly showing that the economy as a whole is not growing. They have been managing to get higher profits by cutting down expenses. In one way it is good because, when business grow from here, they will have higher profit margins.

If suppose, sales takes time to grow, cutting expenses further will lead to lower salaries and people will have less to spend. Economy will become flat.

There is an immediate need for the consumption to pick up. If everyone is saying no sales, thought comes as to, why sales are not happening? Are people not spending money?

It is said that, inflation is low, blue collar salaries are increasing, economy is growing. Then where is the money going? Is the whole population saving without spending? If that is truth, there is a new challenge to deal with.

We have Japan as an example. They saved so much that, now if they keep money in their bank, bank is charging them a fee. There are no borrowers, only deposits. Instead of lending money and earning an income, banks have now become safe keepers for people’s money.

This is the reason that Japan is now financing projects outside their country at ridiculously lower rates. Our bullet train project in Gujarat is financed by Japan. 80K crores finance with technology which we will start repaying only after 15 years and can take 35 years to payback. The interest is 0.10%. It is an advantage for India as we need not worry about the cost of this loan.

When more and more money goes into the affluent people’s hands, only savings get increased. Hence the government’s push to concentrate on increasing income for Blue collar jobs, who will spend and bring consumption.

Does this mean, opportunities for investors have come down?

There are businesses which have been growing, only that investors have the responsibility to identify them and invest. One cannot invest into any other stock & expect returns from his investment. So, be selective when selecting your stocks for investment.

As we are publishing this article, almost all other public sector banks have reported huge loss on their Dec 17 results. Upon this is the RBI directive to move about 2 lakh crores of bad loans to Bankruptcy Court. More pain coming to PSB’s which is bringing out their real worth.

SENSEX goes Partying, Mid & Small Caps left behind

January 2018 has brought a lot of good news like the IMF reports suggesting good GDP growth numbers, PM giving the keynote at Davos, world looking at India as their investment destination and along with that some very interesting movements in the market. Broad indices like SENSEX & NIFTY going higher and higher while the mid & small caps are going down.

Due to SEBI’s decision to re-organize Mutual Fund portfolios, to have one scheme per category and Large Cap schemes should have a prescribed percentage of large cap stocks in their portfolio. Until now, funds used to have good amount of mid and small cap exposure which helped them achieve better returns against the benchmarks. Now, that has got changed and hence, the shuffle of selling mid and small caps to add large cap stocks to the portfolios.

First instance of the regulator’s over interference on the financial assets has begun to show up. Mutual Funds are now forced to buy more of something that is not good in quality, the reason why they shunned them. Because of buy orders in huge quantities that have created artificial demand, prices are going up and with them the broad indices too are reaching for higher highs. Once the buying is over, markets will begin to react.

The huge flow of retail money, which has come into the markets after seeing big growth and with belief that the economic activity is really strong to continue the growth momentum, is going to get a big surprise. All the belief’s and the environment are perfect without any change. The only concern now is the regulator who in the thought of bringing more transparency is creating more challenges to the market participants.

This over indulgence will create underperformance and deplete the quality as well as the belief of the retail investors, who have put in a lot of investments into the mutual funds expecting returns that were made in the last year. When the retail investors experience poor performance, they will begin to withdraw their investments which will create pressure on the fund managers to liquidate, to meet redemption pressures. Which will again force them to sell mid and small cap stocks which have been the performers and further bring down the overall performance of the schemes.

In India, many a times, it is the regulations that are causing bigger challenges and bring down businesses. Later, the blame goes to the operators.

 

IMF Forecast taking SENSEX to 36000

This video talks about:- IMF forecast on India’s GDP growth for 2018 and 2019 which took the SENSEX and NIFTY to their new high of 36000 and 11000 respectively. A new high and how it is beneficial to the investor. India’s visibility in the Davos, World Economic Forum meeting where our Prime Minister Mr.Narendra Modi opened the meet with his keynote speech. India’s development in the last 20 years.

IMF Forecast taking SENSEX to 36000

MF forecast on India’s GDP growth for 2018 and 2019 which took the SENSEX and NIFTY to their new high of 36000 and 11000 respectively. A new high and how it is beneficial to the investor. India’s visibility in the Davos, World Economic Forum meeting where our Prime Minister Mr.Narendra Modi opened the meet with his keynote speech. India’s development in the last 20 years.