Market

OH my GOD…. SENSEX at 35k levels!

OH my GOD…. SENSEX at 35k levels

If I’ll be you, I’ll not panic… Why?

If you look at the chart below, since June 28th, when SEXSEX was at 35,037 level, it climbed to a peak of 38,896 level by Aug 28th, i.e. in just two months a gain of 3800+ points or 11% UP. Did we question that point of time…why so suddenly the market went UP?

Again, if you look at chart below, from beginning of the year, i.e. 1st Jan, SENSEX was at 33,812 level, and from there it went to a peak of 36,283 level by 29th Jan, a gain of 2400+ points or 7% UP. And a correction or a reaction to the budget (key trigger), for the next 2 months slide.

sensex

Above all, key question is, when did I enter the market? The usual answer will be, not in this phase (last three months), i.e. most likely your investments will be spread over multiple years or months (if started recently). Your returns which was looking fabulous last month (when market was at its peak), will come down, but not down to levels, where one should panic.

Fundamentals aside, market sentiment is very weak, with global factors dominating today, over & above the IL&FS story. Crude relentless surge, dollar gaining, and looming trade wars/ sanctions are all driving the market/ sentiment mad.

If you are invested for a long term, i.e. at least 3 to 5 years+, JUST STAY PUT. But keep talking to your advisor, who acts as a coach in this troubled time, to logically explain you the market volatility & WHAT NEXT.

Quote of the Day: “we defend many of these nations (OPEC) for nothing, and they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices, we want them to start lowering prices,” President Trump.

 

Equity Market Panic

Equity Market

Equity market reacted to two key events yesterday, with Sensex going down 1314 points intra-day or 3.5%.

  • There was a significant sell-off – starting with Yes Bank (down 29.5%) and then spreading to,
  • Dewan Housing (down 45%) and other NBFCs, banks and also the broader markets.

While Yes Bank corrected because of RBI’s denial of tenure extension to the CEO Mr. Rana Kapoor, the fall in shares of DHFL was driven by sale of the company’s debt by a mutual fund at higher yields.

What comes out is the fact that, in the broader markets, this was a knee jerk reaction and prices of most stocks should stabilize once the panic subsides.However, the sharp volatility witnessed, highlights the underlying fragility of the market.

It’s true that the selling was largely sentiment driven with no fundamental negatives in most stocks. However, the price action with almost no buying interest characterizes a market where risk appetite is low.

CAGR, IRR, XIRR, Absolute return – I am confused?

CAGR, IRR, XIRR, Absolute return – I am confused?

As an investor in Mutual Funds, we all come across these terms, very often.

What it means?
Which one to use?
Which one is the best?

Let’s simplify…

CAGR; stands for “Compounded Annual Growth Rate”, and works on a compounding formula, based on a single transaction. Usually CAGR is used for estimating future returns, based on historic returns or assumptions, for a time range.

IRR; stands for “Internal Rate of Returns”, and used for calculating returns for multiple transactions, which are equally spaced in time (past or future). Usually IRR is used for calculating returns for SIP transactions.

XIRR; stands for “Extended IRR”, like above, only difference being, when your transactions are not equally spaced in time. For instance, calculating returns for transactions, which may include SIP, Lumpsum, STP, SWP, etc.Absolute returns; refers to the amount of funds (gain or loss), that an investment has earned, over a period of time. Also referred as the “Total Return”, the “Absolute Return” measures the gain or loss experienced by an asset or portfolio.

Rupee Free Fall against Dollar

rupee-vs-dollar

Its shocking to see Rupee’s free fall from 65 to 70,& within last few days to 72 today, against USD. Some of the key reasons which are supporting this downfall, are international events. Experts fell that this volatility will continue for some time to come (one to three months) and stability by Mar-19 or earlier, where Rupee to become stable or under 69.

Some of the key events:

USD & Crude Gaining Strength: USD is gaining strength back home with quantitative tightening & interest rates, leading to drying liquidity. This easy money earlier was chasing emerging market assets (in order to generate higher returns). Rise in crude prices on the other hand is playing spoilsports.

Trade War Concerns: US & China is at war, with US proposing tariffs on USD 200bn worth of Chinese imports in August. This sparked depreciation in CNH to the extent of 11.2% since Mar 2018 (1st time since US proposed tariffs). CNH depreciation makes the goods of other emerging markets less competitive, and thus stokes fears of a slowdown in trade of other emerging markets.

Emerging Markets Contagion: Argentina is going thru a rough phase, with new government, public borrowing has gone up by 50%, and they have USD 25bn debt maturity this year. They have asked IMF USD 50bn to bail them out. Similar round is happening in Turkey, with public debt at 233% of GDP, USD 179bn maturing in 1 year and worsening US relations.

Domestic Factors: Political uncertainty with elections around the corner, CAD/ fiscal health with negative FPI flow, & crude gaining, all are putting pressure on the Rupee.

Factors in favour: RBI intervention, with comfortable reserve (upward of USD 400bn), inflation under control, domestic recovery & possible corrective measure (with IMF help) in Argentina & Turkey.

Sensex at 38000 … do we need to cheer, or worry?

sensex-38000-all-time-high

In just one-month, Sensex has climbed 3000 points, or jumped straight 8.5%. Till June end, everyone was worried, as market has had a very volatile phase (since last six months). As usual, question is, whether one has missed the bus? or the rally has just started?

Let me highlight on the macro trends:

Crude Oil: 70% of the demand for crude oil comes from transport. Alternative for crude oil is Electronic cars, which will become accessible in another 10-15 years (crude reserves are expected to last 50-80 years). Average crude oil price (for India) should range between USD 55-65, because this price doesn’t affect our foreign reserves.

Interest Rates: India currently stands at a decent inflation rate of 5% as the growth rate is 12%. Thus, the real rate of return is positive. Current economic scenario of increased per capita income, increased demand for consumer goods, increased inflation is beneficial for the equity markets. Inflation going at the level where the real rate of return becomes negative will be harmful for the economy.

Trade Wars: Every news you hear about trade wars is not correct (most of it is media hype). All countries know the adverse impact of increased tariff rates on imports and exports. The current world growth rate is 2.5%. After tariffs, it will become 1.5% which is disastrous. USA and EU have almost settled the trade war.

(more…)

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