China Ghost haunts again….

Sleeping BullReturn of the dragon for the markets in beginning of calendar 2016, though not a welcome sign, it was waiting to happen. All the effort that the Chinese government is making to stop the markets from sliding down is becoming counterproductive. Following the market crash in August 2015, they had imposed a ban on selling for large investors for a period of 6 months, which is now coming to a close and in the meantime, they introduced shorter circuits. Circuits are a mechanism to put the market to a halt when it goes out of control in any direction.

Falling Bears

 

This new decision brought more selling pressure and their markets hit downward circuit twice in a week. Overall strength in the Chinese economy is very low, it cannot get revived overnight. Even if they strengthen, there are no chances that it will be the same as it was in the last few years. China story is over now, whereas the tremors that this behemoth economy will bring to the global markets are going to be pretty high. As the Chinese government take the next step to devalue their currency which is expected to be 4-5% from the current levels, it will impact the emerging markets highly.

Export businesses will take a hit and following this event, USD is likely to touch or move past Rupees 71 to a dollar.

As the large cap stocks have taken a bigger and prolong hit, recovery is likely to be in that segment, though it might give significant gains, it will for sure help the SENSEX and the NIFTY give some decent gains in 2016. Mid Cap stocks will take a back seat this year and there are likely to be many exits in our portfolio and to some extent this space will get occupied by Large Cap stocks.

While there are opportunities available always in the markets to grow our savings if we are able to identify good growth companies, which is the stronghold strategy at BTT.

7 Lakh crores lost! Should I be invested, now?

After August 24th carnage in the markets which took away 7 Lakh crores of investor wealth, due to global currency crisis, triggered by slowdown in the Chinese economy, investors in the equity markets are having thoughts to liquidate their holdings and be in cash.

This is a phenomenon experienced among all normal individuals, because sudden shakeouts create fear of further losses.

Chinese economy crashed due to many bad decisions the government took, to keep the robust growth continued. It also shook many other economies that were closely linked with it like Vietnam, Malaysia etc. Malaysia is staring at a near collapse situation with their currency losing value on a continuous basis.

Following China and Vietnam, there are a slew of countries planning to devalue their currency. Some prominent names that are showing strong indications are Kazakhstan, Turkey, South Africa, South Korea etc,. At present none can predict the future course, but, how are we placed in India is a major question that is of importance to us.

As for as India is concerned, it should be said that, “All is Well”. Our economy will be emerging as the strongest after this currency war is over. Thanks to RBI Governor, Raguram Rajan, he is committed to steer India into a totally different path due to his very stringent policy decisions. Along with him, the political climate in India is good compared to other countries.

The expectation we had on the business growth after Narendra Modi got elected as Prime Minister has somewhat lost track, as we did not have much of the expectations met. Corporate results did not show expected growth. Instead, consolidation continued with some companies which had already been in the growth path continuing to meet expectations. But, this consolidation is forming a strong base, from where the bounce will be very strong. It may take time, but for sure there is going to be a turnaround.

Though we had been getting news very often that the rain fall would be deficient, we have received fairly decent rainfall. Crude Oil hitting its 29 year low has been a boon to us, even though our currency is losing against the dollar; we are saving on forex reserves.

In stock market investing, there is bound to be volatility and every such time there is a drop in the market, the economy goes through a change by moving out of the prevailing sectors that have exhausted their growth and enter into the new sectors that are promising in growth. After which it resumes the up move. In the similar manner this time we are moving out of the automobile and ancillary along with agriculture sector that was leading in performance last year to Pharma, Textiles and NBFC companies that have come up to show strength this year.

It is a right time to buy into stocks that have very good fundamental growth in them. And always when the market corrects it gives a higher low and then moves on to take of the previous high. This pattern has been there in any market, across the globe, which can be seen from the chart of SENSEX. It is such corrections that help the investments in stock markets give the highest returns when compared to any other investment asset in the world.

Sensex

The only requirement is that, the portfolio should be tracked and changed according to the prevailing conditions. We at Bravisa Templetree have an automated process that helps us identify new sectors and move out of sectors that are getting slowed down in growth. Bravis Templetree’s investment portfolio has achieved 68.96% return in the last 3 years against the 36.09% return achieved by SENSEX in the same period. Annualized returns on our portfolio are 25.32%, while SENSEX is 13.25%.

big-vs-small-left

This time there is something more interesting in the markets. For the first time in the history of Indian stock markets, Mid Cap stocks have outperformed the Large Caps when markets correct. Traditionally, Large Cap stocks are the ones which lead the growth and the fall. Even the previous correction in 2013 was the same, but this time, Mid-Caps took the lead. While the SENSEX has corrected 13.96% since January 2015, the correction in the Mid-caps so far has been only 4.57%. The biggest reason behind this change is that, among the large cap companies, the metals sector and PSU banking was serious wealth destroyers. And many of the big boys don’t have strong growth in their sales and profits. Whereas, Mid-caps have shown good growth in their earnings and, are also having good managements running them.

In our portfolio we used to have large cap presence in 2013, but, from 2nd half of 2014, the concentration in our portfolio gradually shifted to quality Mid-cap stocks which were the other big reason for us to outperform the benchmarks with a wide margin.

Being invested will be a better choice, as the whole market is poised for phenomenal growth for the next 5 years, beyond that even our market will fall into the saturated category giving lower returns. So, until then take advantage of the life time opportunity, be invested and give your savings the highest possible growth.