There is a drought of good news on the stock market and whatever good news came in the last few months, it failed to lift stock indices. On the last two occasions when RBI cut the repo rate, the market did not close in the positive zone. For instance on 4 March, when the rate cut was announced the market, instead of closing in a positive zone, declined from 29594 to 29381 levels. The same thing happened recently on 2 June when the market tanked from 27849 levels to 27188 levels. It was the same when parliament passed the bill for FDI hike in insurance sector from 26 to 49 per cent. The bill was passed in the late evening of 12 March and hence market could react to this news only on 13 March. On that day the Sensex fell from 28930 levels to 28503 levels. These instances clearly show that market is in no mood to move into the positive territory zone despite positive cues. On the other hand, the market’s sharp reaction to negative news suggests that the sentiment is fragile. Last month, there was a flurry of negative news – be it poor monsoon predictions, poor corporate eafnings, or lack of reforms like dithering on GST or land acquisition bills. To add to its woes, global uncertainty continues to keep the market on tenterhooks. Even RBI governor in his latest monetary policy suggested that global recovery is fragile. There have been great speculations on when Fed would start raising the interest rate. As and when that happens there is a fear that there could be a run on emerging market bonds creating some kind of uncertainty including India on the liquidity situations.
So as an investor what should one do? In the new financial year, many of the stocks have taken a huge beating – Unitech is down by 42 per cent while Jaipraksh Associates is down by 47 per cent and Jet Airways is down by 36 per cent. But this confidence crisis
is not only on the mid-cap and Stnall cap counters but also seen in some of the blue chip stocks like Nestle which is down from 77,500 in March to
- as the company is struggling with Maggi recall due to alleged high lead content in it and also likely presence of Monosodium Glutamate. At the same time, one of the rock solid counters in the last few years was ITC, which has also come under pressure as the company is struggling to report growth in its main business – cigarettes. ITC is down by 15 per cent in 2015 which is rare to see as in the last few years the company emerged as investors’ darling. On the other hand, Sun Pharma, another favourite of investors, came under pressure and is now quoting at 7832, down by 30 per cent after touching a high of 71,200 in April 2015. TCS, which gave handsome CAGR of 20 per cent in the last few years despite overall market sentiment, seems to be facing headwinds. In 2015 it has not gone up as much as the market would have loved it (up by only 2 per cent). Investors’ fancy towards the stock is not as high as what it was till the end of 2014. Another large cap, Reliance Industries, continues to move in narrow range as market is waiting for its ambitious telecom service roll out, which many believe, would be a game-changer for the industry.
|Losers in FY2016|
|Company Name||% Cain|
|PS IT Infrastructure||-63.3|
|Axiscades Engineering Tech||-46.2|
|Infinite Computer Solutions||-38.1|
|Jaiprakash Power Ventures||-35.9|
|jet Airways (India)||-35.5|
|jindal Steel & Power||-32.2|
|Asian Star Company||-32.1|
|% Gain from 1 st April 2015 to 4th june 2015
In a way the market is confused at the present moment. No one knows for sure which direction the market would move! Many believe that the fall in the share prices of many companies have made them attractive but an equal number of people believe that the counters that have fallen may not bounce back. The likes of Jaypee and Unitech are facing confidence crisis. Hence there is little reason for one to buy them in a hurry.
This is not the first time the market is giving confused signals. Many times in the past too it behaved similarly. There is a famous saying in the stock market – and it is more cliched now – but very important to remember, “Buy low and sell high.” On the same line, a famous investment guru has suggested, “Be fearful when others are greedy and be greedy when others are fearful.” Right now many are fearful in the market thinking that market may fall further and they are waiting for the right opportunity. But unfortunately, the right opportunity is known only after it has passed. Also, one can rarely buy at the bottom price and sell at the top price.
Today many stocks in the frontline are available at attractive valuations. Due to market sentiments they have taken a beating but their fundamentals continue to remain strong. When this fear goes away, good sense will prevail and investors would lap up these very stocks. Also for investors there are not many other profitable avenues available to invest in. Fixed deposits will not give you more than 7-8 per cent returns and after deducting tax,
Dividend yieldthe returns would not be more than 6 per cent. Real estate sector is facing its own problems and there is a strong possibility that one would lose money in short term instead of making money from real estate investment. Gold as an investment has lost its sheen as prices are either stagnant or falling – making it a bad investment. Keeping these facts in mind equity seems to be the only option for investors, provided one is willing to have a reasonable holding period of 12-18 months. Indian growth story is not in doubt. When sentiments change they change very fast and then many investors would repent of having missed a golden opportunity to buy shares at low valuations. Investors will recollect that the market gave similar opportunity in February 2013 when sentiments turned negative, but many of the stocks gave more than 100 per cent returns in the next 12-18 months period. Something similar can happen in the next 12-18 months provided you have patience to hold the shares.
Those who wish to play safe in this volatile market can go for the time- tested formula of dividend yields to make money in the market. Also the time is right as many companies announce dividend around this time of the year. So if one buys stocks now they would get two dividends in the period of 15 months, giving a higher dividend yield. When sentiment turns positive one can get capital appreciations too. What is an added bonus is that dividends are tax-free making its post tax yield excellent.
What to do with Nestle now?
Nestle has been one of the well performing stocks even when sentiments were down. The company’s scrip, at the beginning of 2009, was available at ?1,400 and is now trading at ?6,000. In other words, it surged by more than four times in six-and-a-half years. Also this surge has been consistent making it a steady performer. But recent news gives clear indication that Nestle’s image has taken a beating. It’s believed that Maggi contributes nearly 20 per cent to its topline and it is a market
leader in instant noodle business in India. There is little clarity at this point of time how much it adds to the bottom line. Since Maggi is a matured product it should be a highly profitable business for Nestle and hence contribution to bottom line could be more than 20 per cent. Now<the company has recalled Maggi products from all over India. That means Maggi’s sales contribution would be impacted on the company’s topline as well as bottom line. Normally this kind of product recall in FMCG business is a very costly affair. The company will now have to spend heavily on promotions to regain consumers’ confidence. Also it would take some time for Maggi to report volume growth as and when it is available on the market. That means its counter is unlikely to move up in a hurry. What is interesting is that Fils as well as Dlls have been reducing their stake in the company for the last three to four quarters, suggesting that even institutional fancy is on the wane on the counter. We believe that it would take some time for Nestle to regain investors’ confidence and hence suggest investors to move to some other FMCG counters till the dust settles on Maggi.
Go and bay equity
We continue to believe that the market is in a multi-year Bull Run. This correction is part of that Bull Run and hence should be used as an opportunity to invest new money. As a smart strategy, one should look at rate sensitive sectors as repo rate cut should benefit them. Go for companies from housing finance as they would get benefits of lower cost of borrowings and higher volume. Also the government wants housing for all. It makes sense to even invest in some of the leading infra companies now as their valuations are attractive. Also risk vs reward ratio continues to be in favour of equity. We don’t expect the Sensex to dip below 26500. In other words there is not much downside. Dan ke age jeet hai! Go grab good quality shares. You will make good capital appreciations in the next 12-18 months.
- SUNIL DAMANIA [email protected]