Financial Planning

Market Outlook – May 2020

“You’ll never get the Good News and Good Price at the same Time”, a very famous saying.

More often than not, good news is always predicted well in advance, and the market factorises it in the valuation, unless it is a sudden surprise for everyone, like the recent Corporate tax cut. The same situation is with the market now.

We have not resumed normalcy yet, and it looks like we need more time for it to happen. But the market is responding positively, since overall the covid growth rate is in control, started to show signs of getting flat, and eventually to fall. From India’s perspective, the cases are mostly detected in concentrated areas, which is relatively easier to contain, than a dispersed spike occurring sporadically.

As the month of April-20 ends, we have witnessed a partial recovery from overall correction. The Sensex had corrected 39%, from it’s all-time high of 42,273, it shed off 16,635 points to settle down at 25,638. It has now gained back almost 50%, i.e. 8,523 and is now trading at 33,750.

In the last press release of RBI, the governor hinted by stating that since the inflation is in control, they will do whatever it takes to boost the economy, indirectly hinting for a further rate cut. US based weather company, has stated that this year’s monsoon, we will see 105% of average rainfall, which will further ease the inflation as it will support the crop cultivation and overall supply, during the year.

Though the partial recovery has already been taken, the complete recovery will be merit based, depending upon the quarterly earnings of the firm & overall economic recovery. From the valuation standpoint, the market although recovered, still looks attractive at this level, hence one should continue equity allocation further.

Stay Safe! and continue Investing your Savings!

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Market Outlook – April 2020

“There are decades where nothing happens and there are weeks where decades happen.” ― Vladimir Ilyich Lenin

The above quote sums-up, what we have seen in the month of March-20. Some of the key events: 

  • World’s largest democracy went under a total lockdown for 21 days.
  • Crude oil saw the sharpest fall since 1991, last time it occurred on account of Gulf-war.
  • Equity market crashed globally, Indian market’s benchmark Indices i.e. Sensex and Nifty, saw a steep fall of almost 40%, erasing its last 5 years gain and witnessed a recovery, to settle down at 32% down (as on 30th March 2020).
  • RBI announced a rate cut of 75bps, with Repo-rate at 4.4%, which is lowest since the last 20 years.
  • USD/ INR surpassed the 75 barriers.

All this is due to something which is not even tangible and we all seem to be talking over and reading about it. Indian population is assumed to be more vulnerable to this pandemic; as the density of population is too high & the medical infra is too low for its population, which amplifies the fear & spread. The government has taken a very defensive approach and took proactive measures to control the numbers. The first case reported in India was on 29th Jan-20, and it’s been 2 months; from a relative standpoint, we seem to be much in control with our numbers, which is around 1250 (as on 30/Mar/20). China has recovered from Covid-19 and has resumed its production and other economic activity after 2 months of lockdown. The US has yet not announced a full lockdown, and if it does, the economy and stock market may see a further slide.

However, this scenario is much relatable to a ‘V-shaped’ recovery, which describes the ‘classic’ economic shock, a displacement of output, but growth eventually rebounds, because it is an effect of some temporary external forces, that are beyond our control and the inherent economy structure otherwise was strong and in a recovery phase.

Moreover, the recent press release of Mr. Mukesh Aghi, president of US-India Strategic and Partnership forum has officially said that as many as 200 US companies are in talks with them and are interested in setting up an alternative to China by investing in India. If and when this happens, it will be a blessing in disguise for India.

From a valuation standpoint, the market looks very cheap at these levels, hence equity allocation with large-cap stocks, looks highly attractive.

Photo Credit & V-shaped insight: Harvard Business Review

Market Outlook – March 2020, Corona Fear

Market witnessed a sharp correction in Feb, 6.76% in Large Cap, 6.95% & 4.22% in Mid and Small Cap respectively. This was mainly due to heavy selling by Foreign investors, amid the spread of Coronavirus and its cascading effect on Global and Indian economy. FII sold USD 1.6 billion, while the Domestic investors remained net buyers, at USD 1.3 billion. This was a very generic selling, and in the coming months, we can see some merit-based recovery, when the virus fear eases-off.

Though India remained immune from this disease, the industries dependent on China and other counterparties affected by Coronavirus, is facing supply chain disruption, but the resulting slow-down looks temporary. If we look back into history, China is known for such diseases, like SARS in early 2000 & swine flu in 2009. Globally, strict measures are taken by all the countries to control the spread, even China, which is the epicentre, has started to show the early trends of decline in the new cases being detected, since last one week.

India’s biggest competition, when it comes to manufacturing, is with China, as both these countries have labour supply advantage. With the recent Corporate tax rate cut (brought down to 15%), India stands to gain towards future capital investments.

India has been grabbing major attractions, with many MNCs planning to set up Manufacturing plants in India before 2023, to avail the new Tax rate benefit. With China slow-down, Industries are looking at building other alternatives, where India comes out as a clear winner.

India will have a huge upper hand on China in the coming years. The virus effect may create a short-term disruption to overall economy, due to interdependency globally, but it is expected to perform even better in coming years.

For the month of March, we’re expecting the market to remain volatile, till the time the virus spread slows-down and eventually starts falling. Analysts will foresee and give their expectations regarding the quarterly results in the late March, which is due to be released in April. Overall JFM quarter is expected to be subdued, while the GDP for Q3 is 4.7%, Q1 and Q2 GDP was revised to be 5.6% and 5% respectively. It is expected to fall further, as we are expecting overall global slowdown in February and March.

Since the corrections are expected to be temporary, we can be opportunistic to invest more in equity, and hence one can look at increasing equity allocation, in phases.

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Deep Dive – Corona Fear Grips The Market

Corona fear gripped Dalal-Street this week (in-line with the world markets), with Nifty diving 879 points or 7.3% down, biggest weekly fall seen in the last ten years (US Dow down almost 10%). Rs. 10 lakh crores of investor wealth wiped out in just six trading sessions due to coronavirus impact globally. Sell-off happened after fresh cases of coronavirus outside Chine i.e. Italy, Iran & South Korea. Moreover, the US officials warned American people, to be prepared for it.

Sharp foreign fund outflow in last few sessions created negative sentiments in the market, FII (Foreign institutional investor) were the net-seller this week, to the tune of Rs.9939 crores, whereas DII (Domestic institutional investor) were the net-buyer, to the tune of Rs.8364 crores, as on Thursday. Brent crude again tumbled to USD50.

India’s GDP growth improved to 4.7% in the December quarter, from 4.5% in previous quarters, retaining GDP growth at 5% for 2019-20. Improvement from coronavirus will help the economy to grow further.

Overall, one can see this as a correction to the big optimism created in the markets since last quarter (domestic & international). We expect the market to remain volatile for the next few weeks to few months. We hope to see corona virus containment, mainly in China & strict control with the rest of the world, over the next few weeks. In-turn will bring confidence to the world & the markets.

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Market Update – A Happy Shivratri!

Indian benchmark indices remained volatile throughout the week and gave up all the weekly gains in the last session, declining for three out of four days (Friday market is closed on account of Mahashivratri).

The market surged on the hope of decrease in the new cases of coronavirus in China, with crude oil prices rising again to USD 59, after a huge fall last week, making a low of USD 53, due to low demand in the Chinese market.

The most awaited SBI IPO; finally got SEBI’s approval, to get listed on the stock exchange in March-2020, IPO will be open from 2nd March to 5th March, with an issue price band of 750-755 per share.

Telecom sector was in focus, over the payment of AGR dues and awaited the view from the government to offer relief in the form of deferred payment. So far Airtel has cleared 10000 crores, Vodafone- Idea 3500 crores and Tata teleservices 2197 crores, towards AGR dues.

IRCTC was is action this week, gaining almost Rs.400/- in just four days, leading to a close at Rs.1912/-, with a crazy buying frenzy.

Hope to see Corona Virus numbers coming down next week, and Chinese work engine to soon start reviving again. The real worry is on, how strong is the containment & maybe future relapse, as they will decide on how soon Chinese mainstream will start working again.

Photo credit: Nilesh Shah/ Twitter

My Gym Diary

This is a story of my senior, narrated to us in one of the training sessions, worth sharing, therefore thought of writing.

I joined my first gym, some 6 years back, a well-equipped and a renowned gym of my vicinity. After completing the first three days (free trial), seeing others with well-toned physic, I was inspired to go ahead on the annual subscription. My enthusiasm kept me disciplined for my new routine, for the next few weeks. My mornings were early, reaching the gym before time, warming-up and starting with the pre-planned sessions.

By the third week, this enthusiasm started fading… and soon my work, family, & above all, my laziness took over, resulting in just 5 days in the next 6 months. Life moved on, and so did I 😉.

After a good 2 years later, I saw a colleague of mine in-shape, and this got me thinking again. My curiosity arose & I asked him about his working-out pattern and gym details. He introduced me to a completely new concept of working out. He had purchased all common gym equipment’s and turned one room of his residence into a gym. He shared his gym experience, and with his in-house gym, he has a fit body!

My brain started working out on the calculations. Buying gym equipment Vs, a gym subscription. Buying the gym equipment’s and creating one at home looked pretty exciting and it worked as a new bait for my brain to take up the new challenge. What next? Skipping rope, dumbbells, weights, cycle, walking track, all were bought home in the following months and they became my new muse. There was no routine or a strict schedule to my working out, but it went well for a couple of months. But my laziness soon took over again, and even this plan didn’t work.

After two failed attempts, I gave up on the gym for almost 2 years. 

Last year, one of my friends dragged me to his gym. He sent me reminders to ensure that I wake up early. In the gym, we subscribed for a personal trainer, who helped us on a routine, based our body types and issues. And I have been a regular since.

What’s different now? well, laziness is a human attribute, and common to all of us. What we all need; is a push, or a nudge, daily (or regular basis), to keep us going. Which is also evident in our work & every aspect of life. For my gym, this started with my friend & taken over by my trainer later.

Investing is also very similar, you get into doing on your own first, seeing the ads or others… but you repent later, moreover discipline never sets in… that’s why, it’s advised to be guided by experts, not just once but on a regular basis.

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Market & the Corona Virus

Indian Equity market witnessed selling pressure, due to the death troll rise by the deadly Corona virus and fear of its spreading, which impacted the Global market, as well as the Domestic market.

On a weekly basis, Sensex closed at 41257 with a gain of 332 points or 0.8%, and Nifty at 12113 up 64 point or 0.5%. Sectors which are impacted due to Corona Virus China shutdown are; Auto Industry (which is already struggling), Tourism, Aviation and Electronics.

The retail inflation touched all time high, hitting 7.59%, impacting FD returns, as inflation adjusted return from Fixed Income (FD’s), now will become less attractive. Factory output declined to 0.3% in Dec-19, compared with a 1.8% rise in Nov-19.

According to S&P, India’s growth will recover soon, as slowdown is cyclical, with supportive monetary policy, measures by the government, will keep real GDP growth at 7.4% by FY20.

Stocks in focus: IRCTC jumped on news (profit nearly triples), Bharti Airtel rallied after improved performance & recent equity fund raise, and Avenue Supermart, due to share offloading via OFS to match exchange requirement.

Sensex Rebound

What a week it’s been; the entire budget slide of minus 1k points, went positive within two days. Hence, Indian Indices Nifty & Sensex, again shined back to their 12k & 40k levels, bringing positivity in the market, leaving behind the Budget disappointment and China slow-down, on account of Corona virus.

I attended Kotak Funds meet this week & Key Takeaway; 

  • Market crashed on budget day, mainly due to US market fall of 603 points & Chinese market fall of 9%, due to Corona virus fear.
  • Assumptions taken in budget, are achievable, but very difficult, keeping in mind Govts past track record. For instance: from Telecom, Govt is expecting 1.3lac Cr in AGR collections, but if Vodafone defaults 50K Cr, what will happen then?
  • Disinvestment targets are Tall, but achievable, considering BPCL, LIC & Concor disinvestment is done, on-time.
  • Fiscal Deficit is within the cushion range & Govt will be maintaining it further, as there is enough room for higher fiscal deficit to support growth. For instance: cushion range for fiscal deficit is 4.5% & Govt is maintaining at 3.8% & 3.5% for FY-20 & FY-21 respectively.
  • Most Indians consume Chinese goods; to curb the same, customs duty was increased in many products, to boost Make in India.
  • Tax rates simplification, is to aim, increase in spending among millennials (to boost consumption).
  • Current market favours, huge interest in Mid & Small Caps accumulation. Also, one should reduce positions in Large Caps. Large Cap Stocks are in a bubble range; HUL, Asian Paints, Nestle, Bajaj Finance, Titan, Britannia; all are trading above 10year PE.
  • Switch funds from Dividend paying schemes to Growth.

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Market Outlook – February 2020, post-budget

Mid & Small-cap completely dominated the Large-cap in the previous month, where the Large-cap index gave a return of -1.25%, while the Mid & Small-cap gave a return of 3.30% and 7.72% respectively. This spurt was anticipated in advance, hence the allocation towards Mid & Small-cap was suggested, as compared to the previous month.

The large-cap index was dominated by selling pressure from the FII, due to global cues of US-Iran war and Coronavirus mainly, which overshadowed the pre-budget rally (on hopes).

For the month of February, one can expect the market to remain volatile, as GDP data, RBI policy, Quarterly results, and the greater impact of Coronavirus on Asian & global market, will give mixed cues to the Indian market.

In the Budget, the government has increased customs duty on imported items, to promote ‘Make in India’ initiative, parallelly they have also reduced corporate tax to 15%, for newly set-up manufacturing units. The impact of this initiative will be seen in the long-term. But for the short-term, the new tax regime will discourage certain class of tax-payers to invest in tax-savings instruments and will leave more money in their hands (to spend), which will boost the consumption (which is actually the need of the hour).

Due to significant fall seen on the day of Budget, one can look at increasing equity allocation. With improved earnings, due to lower corporate tax and correction seen in the market, has made the overall market, relatively less expensive.

Happy Investing!!!

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Union Budget 2020 – Longest & with a steepest fall!

Sensex crashes 1000 points today, as the market gives thumbs down to the union budget. Also, one of the longest budget speeches by the Finance Minister, heard in the last one decade.

Income tax changes were the most sought-after point but led to disappointment & created more confusion. To put it straight, now an individual has a choice to decide between two ways to pay tax; i.e. the Old-Slabs, which comes with many deductions, and the New-Slabs, introduced in this budget, which is without any deduction.

Simple calculation shows that, new slabs doesn’t give greater tax benefits, as one goes higher on income. For higher income, it’s better to have the old slab, as deductions (savings) help you save more.

By creating the new IT slabs, all the traded Insurance companies in the market crashed, as no longer they will have the IT benefit bundled with life policies.

Other key announcements:

  • Deposit Insurance Coverage to increase from 1 lakh to 5 Lakh per depositor.
  • Dividend Distribution Tax removed, and classical system of dividend taxation adopted.
  • Simplified GST return shall be implemented from 1st April 2020. Refund process to be fully automated.
  • The fiscal deficit is seen at 3.8% of GDP against projected 3.3%.
  • Propose to divest LIC via IPO.
  • To sell govt stake in IDBI Bank to private investors.

To boost infrastructure, 9,000 km of economic corridor will be set up. Chennai-Bengaluru expressway will also be started. Delhi-Mumbai expressway to be completed by 2023. Allocation of Rs 27,300 crore for development of industry and commerce. 100 more airports to be developed by 2025. 1,150 trains will run under the public private partnership (PPP) mode, also four stations will be redeveloped with the help of the private sector.

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