Budget is behind us, who is selling…..

 

Businessman against black bear balancing on cliff with sky treesFor those who had expectations that the Budget will bring some respite from the fall in the markets, now, it is a disappointment. Markets are bearish now and the Finance Minister took it to his advantage, realized that any good will not bear a positive impact, markets will only discount it and go down after adjusting the positives. So, better leave it as it is and look at what needs to be done, was the decision of the FM.

There were fears that Long Term Capital Gains will get extended to 3 years which did not happen and the tax on dividends which was another fear, has come through, while in a smaller manner. Only those who have above 10 lakhs as dividend income have to pay a 10% tax.

There was big expectations that the government will bring in a big time support to PSU Banks, which though happened, was at a lower level, market expectation was an above 55K Crore recap, while it came in at 25K crores. In the actual sense, there is no requirement for the government to give this support, because there is no guarantee that these banks will not repeat the same act again. It is best to leave them to tend the issue, which in fact will become a lesson for them and the pain will make them realize and help them become more responsible. Whereas, support will only mean that, “It was not my mistake, what I am doing is right. It is the government which made the mistake and they have taken care off of their mistake.” And he will continue with the same quality of work, may be generating another lakh plus crores in losses.

Actually, it is the government that is making a mistake, even now. They are not realizing that the people whom they have employed to manage this money are the culprits, unless there is a realization and action taken, no amount of recap will help clean the banking system.

So bear market is to continue for some more time. The confusion that budget had created in the markets will take time to resolve and expecting the markets to turn around soon will be defeated.

Last week there was a meeting of all the top fund managers of our country in Mumbai seaside. There, on a discussion between Equity fund managers and the Debt fund managers this was the talk.

Equity Fund manager: People will make money if they invest in our Equity Fund.

Debt Fund Manager: people maybe investing in your Equity Fund, but almost all the equity fund managers are investing their personal money in debt funds.

Equity: Arre boss! What are you saying? All of us are fully invested in Equities. We’re quite bullish.

Debt: Bullish or foolish, only time will tell.

Prashant Jain is bullish, S Naren is not selling, Nilesh Shah is not selling, Neelkanth Mishra is not advising his clients to sell, Ridham Desai is bullish and S Nagnath has a same view.

Toh maal bech kon raha hai? Who is selling?

Good question, but no answer!

 

For our Equity clients at BTT, we are fully sold off, and have parked funds into debt. So, it clearly shows, smart people follow the market differently.

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.

27 PSB’s lost 1.14 Lakh Crores in 4 years.

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27 Public Sector Banks have written off 1.14 lakh crores of bad debts in the last 4 years. Here is the efficiency of the banking sector in the hands of the government management. It is disturbing to realize the poor condition our banks are being managed. On the other hand the private sector counterparts are doing good business. What does this mean? Very poor competency among the PSB management, next to zero responsibility in delivering results.

Couple of days back there was a question to me; SBI has come down to 200 from 320, can we buy? The reason behind this thought was that, the SBI stock had been at a higher price very recently, now it has fallen and hence it is cheap. The answer I gave was, the price was at 320 was for a reason and it is the same when it is at 200, now. It is not cheap. In a couple of days from this discussion, SBI stock price came to 160, and again there was the question, now that it is at 160 can we buy now?

What this indicates is, that people of India have developed so much confidence on this bank; it has been part and parcel of their life for generations. Little do they know that, what was in the early days is history, there was no competition, though the management did not have the competency or responsibility, they had the advantage of opportunity at their hands, they got some of the best and some that were useless too, on the whole they made money.

Now the situation is different, private banks are giving this irresponsible bank management a run for their money. All the quality assets have gone to the private players because of the quality and service they provide. Now, the left over business is crap and that is where these PSB’s are rolling their funds. Very soon all the confidence that the citizens of India have on SBI or the PSB’s on the whole will vanish into thin air.

In our portfolio, we don’t have banking exposure since 2013. It was very early for us to move away from banking investments, the reason we got out was because our system did not qualify banks for investment, and their growth was fairly lower in comparison to companies that were showing super strong growth. Hence, our investments moved to those quality assets and now, when the whole market is weak, our portfolio is even more safe as we have moved off from equity exposure to a fair extent, thus keeping the capital protected in times of turbulence.

Our portfolio is 30% in Equity and 70% in short term debt, making the capital safe when the markets are weak.