Getting to the end of April 2019, election season has caught up with the markets. It is doing up and down moves every day. Continue reading
The whole country was crying foul on the rising fuel prices where government was taking a big share of the price increase by way of duties. These duties were increased when crude prices dropped so that government can use the funds to meet some of its immediate expenses while people at large have already been used to high fuel prices.
After the down cycle got over in Crude and prices moved up, the additional excise duty gave equivalent amount of revenue to the government. Many state governments have become so used to this income that now if it is removed, many of them will not be able to pay salaries to their state government employees.
So as a nation, people are indirectly helping governments tide through their challenges which has been mostly caused due to their inefficiency.
Now, when government decided enough of public outcry and reduced the excise duties on petrol by taking a hit of ₹1.50 to the centre, asking the OMC’s to take a ₹1 hit and requesting state governments to chip in with a reduction of ₹2.50 per litre of petrol. The loss to the exchequer is 10500 crores.
Within minutes of the announcement, now the media is talking about what the country will lose due to this cut in duties. Ayushman Bharath program will get impacted. Subsidised Kerosene and LPG will now cost more. Funding or Air India and sinking banks might be a challenge & direct tax collections will not meet the shortfall which will increase our deficit. This thought brings to picture where the money was going. In one way when people drove around the country using fuel, they funded the poor and needy.
From saying that, the government is adamant of not reducing duties as the common man is suffering due to high petrol prices’ to now saying “because of reduction in prices poor man will not get many of the facilities that is about to come to him.” Looks like the distress needs to be there in some way of the other, which one is best will come out soon.
State governments that are ruled by parties other than that at the centre (the BJP) have gone against the cut and have announced that they will not reduce taxes. Now, this will play out to the favour of BJP in the upcoming elections. Probably the expectations of the wide section of the population today about the 2ndterm for BJP at the centre might be a reality.
In the past 1 year, one sector that did tremendously well was the Tyre sector. It has given between 100-489% return on investment. Among the several reasons behind this phenomenal growth, the 2 strong points were –
1. Rubber prices on the Global markets reached 5 year lows. Tyres companies capitalized on this, did not transfer the gains to customers, but, instead increased their margins. The margin gains to the extent of 50% were witnessed on the year on year NPM.
2. The economic cycle in our country slowed down. Due to tight money situations, people who normally change their cars in 5 years, continued to run with the existing ones. When they did not replace their vehicles, they were forced to replace the wear and tear in them. Which gave a very good replacement market for the Tyre companies. This may not continue for a longer period, the present situation is entirely different. Our economy is the best performer in the Global arena. Income levels will rise and people will replace their cars. Here again is an opportunity. OEM’s will start their purchases, which again will contribute for good sales.
How did we capitalize on this bull run?
Our research identified Tyre stocks when the shift began to show up, way behind in the second quarter of 2013-14. At that period, there were no news about rubber prices. It was just analysis. We got signals only in CEAT and JK TYRES, not the other companies. Today, when we look back, these were the two stocks that have given more than 300% profits in the last 1 year. Other stocks, though in big time news, did not give the best return on investment. Following is the One-year chart comparison of the Tyre Stock performance in the last 1 year.
We did not go all out in to be fully invested in these stocks. As per our strategy and discipline we kept to the allowed exposure and for now, have made decent gains on our investment. So, having a plan and following the plan divinely pay rich profits over a longer period consistently.
Stock investing is not rocket science, it is like any other business. A business of investing, if done with passion, we can drive home with loads of cash.