Safety In Size

Let me begin by asking you a simple question. What, according to you, is the biggest worry for an investor today? l am sure to get a diverse set of answers to this seemingly generic question that I have raised. On a broader level, many would point toward the shaky macro environment, not just on the domestic but also on the global front. But if asked to point to a more specific factor, the consensus would obviously be on the great slide of the Indian rupee. From cocktail circuits to kitty parties, from watercooler gossip to canteen chatter, the rupee today has become a subject of great interest and animated discussion. 

Naturally, the reverberations of a sliding rupee are being felt across the board on the economic front too. But what has led to the weakening of the rupee? Well, the first and most important of the reasons is a perceived improvement in the US economic fortunes. The talk of the US Federal Reserve tapering off the bond buying programme in the wake of strengthening economic fundamentals has sent the financial community in the US into a frenzy of pulling out money from across the globe (more so in the emerging markets) and bringing it back home. For India, the situation has led to a double whammy. The ever rising current account deficit has been further exacerbated by higher imports (mainly of crude oil and more importantly of gold) and lower exports. 

The second and more important impact has been felt on the financial markets, particularly the bond market, which has witnessed a mass exit of foreign funds. However, the saving grace in this case has been the keen interest that the domestic mutual funds have taken in buying what the foreigners have been keenly selling. Is it a bet worth taking? Only time will tell. For now, we are presenting you with the micro details of what has been happening on this front along with the possible outcomes of this rush by domestic institutions of buying into the bond market. 

So, just how bad is the situation? Rather, how much worse could it get from here on? We have tried to answer this crucial question in our special report (The Indian Rupee Has A Great Fall, Page 64). In my opinion, a falling rupee is a natural deterrent to gold imports. These have already started coming down and will go down still further going forward. On the oil front, India would sooner or later be required to strike deals with countries like Iran, Iraq or even Sudan, all which have huge oil reserves. 

On the other hand, a rising dollar means lower exports and higher imports for the US economy. This spells good news for countries like India and China, which export in good measure to the US. There is sure to be a point where these economies will start benefiting from the strengthening of the US dollar. We would like to explore this further and will pinpoint the real point of inflection very soon. 

While all this has been happening, the lay investor has been suffering the pangs of a highly volatile market. But should the fear of volatility lead you to sell all and be out of the market? Well, not if you are a regular follower of DSIJ. In volatile and risky times like the ones we currently are in, it is always better to stick to the big guns, viz. the Large-Caps. Large- Cap stocks have historically weathered the storms of uncertainty surrounding the markets much better than their smaller and mid-sized counterparts. After all, the most important factor that determines your success of playing the equity markets to your advantage is the way you manage higher volatility. 

The Cover Story for this issue trains its lens on the Large-Cap equity space. Our research and editorial team has put together a very interesting perspective of what takes companies to the top and helps them to stay there. There are some very good investible ideas, which we are sure will take care of your portfolio’s alpha going forward. Of course, while capital appreciation remains the idea central to investing, it is always better to have a second line of defence as well. This can be built by having stocks in your portfolio which give you consistent returns in the form of dividends. Our team has not looked at dividends in isolation, but has combined it with other factors too to bring to you some interesting companies which are capable of giving you the double benefit of capital appreciation as well as income generation. 

In addition, our regular recommendation columns including Low Priced Scrip (Arvind Remedies) and Choice Scrip (Zydus Wellness) along with Hot Chips and Informed Intelligence, which should serve their desired purpose of helping you build a strong portfolio and enabling us to do what we do best – Democratising Wealth Creation!