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%.

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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.

HPCL is having double advantage.

Crude Oil prices are moving down again for good, there are two kinds of impact due to this. One, Oil producing countries will be in the revenge mode, though they are not destined to get higher realization, they have enjoyed the fruits of Oil at its historic high. To the extent the price is under pressure, they are losing profits which they had already seen. Crude Oil price is going down due to fear among the Oil producing countries that they may lose the opportunity of even the prevailing prices as it slides further.

This fear among all producers is adding to more supply and bringing down prices further. But, oil importing countries are at the receiving end. Oil marketing companies are the biggest beneficiaries due to the crude oil price correction. They now have the advantage of the government releasing them from the crutches of controlled pricing at a slower pace and also the lower price of their inventories.

HPCL Bunk

Among them the best managed ones reap further higher reward, one among them is HPCL. HPCL, along with refining also has been making good volumes in the lubes business, in which it is the third largest in the world. Lubes business is contributing to 35% of their profits and they have been consistently eating into Castrol’s market share. Castrol is the No. 1 Player in lubes business, but have been losing volume for quite some time now. Castrol’s losses have been adding up to HPCL’s market share.

Lube Oil

Going forward lubes business is likely to contribute big time in the profits of HPCL, which is already reflecting in its stock price that has been up 50% in the last 3 months.

June quarter results came with great numbers, sales drops by 12% while profits grow by more than 3000% all due to the drop in inventory price.

HPCL has achieved record profits for the 2014-15, highest since its inception, in spite of Crude Oil price going down by more than half.

We bought HPCL into our portfolio at about ₹600 in December 2014; the stock hit a high of ₹990 in August 2015 before going into a correction. Come December 2015 all the profits from this investment will be tax free and with the strength this stock has been showing, it has a long way to go from here.

 

Crude Oil at its 29 year low

Crude Oil at its 29 year low, china markets expected to fall another 9% & Currency war heating up with South Korea, Kazakhstan & Turkey likely to follow China and Vietnam in devaluation.

Global-Meltdown

Every time there is a shakeout in the markets, analysts come out to feed more fear by giving out comparisons with previous bear markets. This time again similar news has been doing rounds, 2001 and 1987 bear moves have been reached and the next one that is eyed is 1929 crash. Can this happen?

What is India’s position in this uncertainty?

And the next immediate question, what will happen to my portfolio? Am I protected & where should I press the trigger for exit?

Lot many questions like this will surface in our minds as we keep hearing and witnessing things panning out in the Global arena. As of now, we cannot predict a big disaster, but a shakeout is eminent.

China became the world’s factory; their greed fed into themselves and now has boomeranged. One can only control the external forces to some extent. Anyone having thoughts to have full control of any activity will have to be prepared for a backlash & China has bitten little too large in this manner. They increased capacities to such levels that, the requirements of the whole world, are met by them. They thought that, by having large manufacturing bases, they can bring down cost and be very highly competitive killing all other manufacturers across the globe.

Isn’t it too very selfish?

For someone greedy to this level, will have to face the consequences and that is what is happening now.

As China grew to strength, other economies became dependent on China’s mammoth growth. Oil – Skyrocketed, because it was thought that China had an insatiable demand to support its phenomenal growth. Steel was expected to be of very high demand and huge capacities were created across the globe.

About some time back I met a top official of JSW Chile, he gave me inputs on what China is planning to do and for those ambitious dreams to come true, China needs more than 3 times the existing world supplies in Steel. China will outstrip all other economies in growth and make the whole world fall unto their feet. Xi Jinping, is very smart in his decisions and world will be astonished by his policy decisions. JSW top brass told me that he is accumulating steel stocks across the globe to cash in on the mad rush that is likely to come in a couple of years. I met him in mid-2015, at that time steel prices were at $600 and now it is near its low at $140.

My view at that time was bullish on India, which he was confronting, while it was a knowledge to learn about the correlation of Crude, Steel and other commodities in the Global play, for me it was not justified that China still held strength at that time. Don’t know if I too pessimistic about China, but, back of the mind it was ringing that China is a story that has come to an end.

As I am writing this, there is news that Malaysia is likely to collapse in a day or two, they have become number one in corruption and Global stock markets have tumbled, India has lost more than 4% on the main indices.

Global markets are going to be bearish for some time to come as the pressure of the current fall will take time to recoup.

Should you worry about your investment portfolio?

Absolutely yes, if you don’t have a exit mechanism. If there is a system in place, all the weak stocks will wither and weed out giving space for attractive and vibrant new comers after the turmoil is over.

Yuan devaluation brings pressure to the emerging markets.

China is in a shaky ground, they seem to have hit a road block. In April-May 2015, they offered IPO’s at a discount to bring in foreign inflows. It did come in truck loads; FPI’s deserted other emerging markets, by triggering a sell off. China was happy, markets exploded with the support of the huge fund flow, gave a 150% gain in 6 months.

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By beginning June, the world was aghast about the phenomenal growth China markets had, many even thought that, they had missed a great opportunity, even though there were no reason that was fundamentally strong to invest into China.

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Just as this thought was beginning to rise in the minds of people, China markets took to a drastic turn. Within 7 days markets lost 25% of value and kept falling as if there was not bottom. All the investors who made a beeline to invest into the discounted IPO’s wanted to book profit and take away whatever profits were available to them. This was adding pressure to the prices.

Government reacted; they began to suspend trading in stocks that tanked badly. About 1440 companies suspended trading on the main board of Shangai and Shenzen markets, world went into panic mode. Suspension continued for 4 straight days, never in the history of the financial markets did this happen. Even locals began to lose confidence, Mutual Fund investors in China too hit the redemption button, but fund houses were not having funds to redeem as they were not able to sell holdings to get cash. Investor sentiments took a big hit.

Chinese economy was in a slowdown mode, it was not because they got lesser business. The US markets which have been feeding the Chinese manufacturing might was still doing good. All the problems were due to huge capacities that Chinese companies had built. It was so large that they need the whole world requirements to be catered to, to reach their utilization levels. But, will that be a possibility? Too much greed has caused this dramatic fall. And is there is a chance to recover? Possibly not, unless some adverse measures are taken.

And it happened, China resorted to devaluing their currency, twice within 2 days and was planning further cut. This again shook the emerging markets; all of a sudden emerging markets became uncompetitive. China wanted to take away all the business from the world by selling cheap. Now, they have irked the anger of other economies who were surviving through exports. Textiles, Auto mobiles and other manufacturing businesses took a severe beating.

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In order to keep its hunger fed, China is killing the world, how long will this situation continue? Don’t know, but for China the days are numbered. They will resort to such indecent moves which will take them out of confidence on all fronts.

Who will be the major gainer in this fight for supremacy? India is going to be the highest beneficiary, after all the dust settles and the confidence on the Chinese market is eroded, the only market that can support the world requirement to some extent is India. Already work is on to de-risk china in our growth. But, till that wonderful time of supremacy comes to India, we too have to go through the pain. The pain that will teach us how to handle similar crisis and march forward.