October was perceived to be a weak month for the markets based on past records, while it went on to be a fairly good month. Whereas November took a marginal hit & now comes the December pain. In the last 5 years, 2 years in December was negative. So, will this year turn out to be a weak one for our markets?
Now the dynamics have taken a different shape. December has a lot of events which will make the markets swing on both directions. Some important news flow are expected on the implementation of GST and FED interest rate hike and it is most likely that in December the markets are going to be volatile. SENSEX should re-test the 25100 levels reached in August to gain strength before any rally can happen, which has a fairly good chance to occur in December.
After the Bihar election results, the government at the center has an urgent need to bring some reforms into action, while the support at the Rajya Sabha to do that, will not let it happen smoothly. So, GST may or may not happen in the winter session of the parliament. This can be tricky on the markets.
Raguram Rajan has cleared that there is not going to be any positive surprise from his side in the December policy review, which is now confirmed that there is not going to be any good news to the markets from this front.
Gold Bonds, the brainchild of Rajan, did see some good take off with about ₹917 crores on investment coming in, over a period this product will gain some market share which is a very good change for our country as we need not import Gold and that much of FOREX is saved, boosting the Current Account Deficit numbers.
Again the FED issue is getting into limelight, with the jobs data in the US markets showing strength, there are fairly good chances that the FED will hike interest rates. As of now FII’s are on the side-lines having the positive expectation on the FED meet, which if interest rates are increased, though will not cause a bigger impact to our markets as the FII’s have already sold off. While on the other hand if the decision gets postponed or has come confirmation that it is going to be delayed, then, we should look at some inflows from the Foreign Portfolio Investors (FPI’s). With the domestic institutions already having a strong hand on the markets, any support from the FPI front will give an additional strength to the markets.
So, it is confirmed that there is a lot of confusion prevailing at the moment and the line of resistance in on the down side. If it so happens, which has a fairly good chance, it is good for the markets as it will build the strength required and move up. And this base building will not happen in a hurry; it will take its own time which, in the process will kill patience of traders and investors, who got into the market in the later part of the 2014-15 rallies.
Weaker hands in the market should get moved out to have a strong rally.
With such confusion prevailing what can happen to investments?
Our market is in a clear bull market trend, so all the corrections and consolidations are an advantage to accumulate on the investments, while it will require smart decisions. There are a good number of businesses which are very attractive based on their earnings, these stocks will move up and give opportunities to profit.
Pharma, NBFC, Textiles and some select technology stocks will have good runs in the coming month. Whereas the large cap stocks that form the broader indices like the SENSEX and NIFTY will have pressure. Banking is weak and is not in a hurry to run up. Metals are still weak, which might see some more consolidation and down ward pressure.
Stock investments are going to be volatile in performance; even the Equity Mutual Funds will have pressure on their performance. Baring few schemes like the ICICI Prudential Exports, which has a very dynamic portfolio, holding on to the best stocks.
Results of the September quarter was muted, sales growth was sluggish which did not bring out any businesses worthy of investment, some existing ones that were in the growth phase continue to hold on to their performance, while some prominent ones like Eicher Motors, Page Industries which had been commanding a major share of long term investment portfolios have moved out following slowdown in their business growth. These are stocks that have given its investors more than 1000 percent profits in the last 5 to 6 years and now it is correction time for them.
In the Pharma sector, front line stocks have taken a very big hit following USFDA issues, Dr. Reddy’s has lost more than 35% of its value in 2 weeks from the time the US authorities began questioning them. While bigger players have been losing the mid-caps in this segment are doing well. Stocks like Alembic Pharma, Aurobindo Pharma, Cadila etc., are getting more exposure in portfolios.
How is 2015 likely to end for the Indian Stock markets?
So far from January 2015, the major indices like the SENSEX are down about 4% and with no big booster dose available in the month of December, SENSEX is likely to close negative for 2015. After a gain of 40+ percentage in 2014, the very next year getting into Red is of a concern to the long term trend of our country.
One good advantage with a prolonged correction or consolidation as it should be fairly called, since the markets have begun to consolidate after a pretty strong rally is that the break out from the consolidation will have a higher chance of going into another very strong rally. With the prevailing economic conditions and the way India is positioned among the global markets, we will have some more super strong growth years to experience.
How is BTT portfolio placed in the markets now?
Before the markets began to consolidate, the SENSEX reached its peak in April 2015, while our portfolio held on to its strength, reached a new peak in August, just before the Chinese market crisis, which showed that our portfolio was stronger than the SENSEX. As soon as the correction set in, we had a slew of exits from the investments which had given substantial gains and have begun to get slow on their growth, in our portfolio which brought down our exposure in the markets by 25%. Our performance for 2015 has mimicked the SENSEX.
Now, there is a question, with a strong portfolio and reduced exposure, why are we not outperforming the indices?
The stocks that form our portfolio are super strong on their fundamental strength, due to which the price increase was very high. We have stocks that have generated triple digit growths on their stock prices within 2-3 months from the date of our investment. Such high growth in price have the tendency to correct faster too when the whole market gets subdued, due to which the impact on the performance is high. This impact should have normally caused under perform to under perform the broader markets, while it was not. The reason that we are at par with the index in performance was due to the reduction in exposure.
September results did not bring out new investment opportunities and with the subdued sentiment in the markets even in the festive season, January results are also not likely to show any big surprises. We will be adding new investments only when the companies begin to report good numbers and until then, we will be light on exposure giving the best possible safety to the capital invested.
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