Rising Oil Prices And Declining Rupee Bogging Down Markets

Markets have predictably reacted to the political development in Karnataka in the short term. Markets are also staring at the concerns over rising crude oil prices and the damage these can cause to the Indian economic growth story. The US sanctions on Venezuala and Iran and the production cut in OPEC are pushing the crude oil prices higher. The rising crude oil prices, along with the declining Indian rupee, which is Asia’s worst performing currency in CY18 so far, have created headwinds for the equity markets. 

The macro-economic indicators are intact as of now, however concerns remain due to the declining forex reserves owing to RBI intervention, expected rise in inflation and the pressure on the current account deficit due to the rising crude oil prices. The retail participation in the equity markets is healthy and the inflows into the equity markets should not be a concern. The quarterly results were in line with the estimates and, going ahead, the results should reflect growth, thereby supporting equity prices. 

The cover story in this issue talks about bonus issue of shares and whether companies that issue bonus shares create shareholder wealth. It looks like investors are not hugely rewarded due to bonus issue of shares. However, there are ways for investors to benefit from the corporate actions. I am sure you will find our observations useful and I hope you can profit from it. 

There are certain sectors that are prone to higher debt, while there are stocks in certain sectors where the debt levels in general are very low. We find that there is some visible outperformance in stocks of companies that have zero debts. The objective of any investor should be to maximise risk-adjusted returns and here is where the ‘zero debt’ stocks chip in. Do share your thoughts on this story and let us know if you agree with our observations. 

Investors were delighted by the overall equity performance in CY17 even as the IPO performance was the highlight in CY17. CY18 does not look like a year to be remembered for the IPOs, so far at least. The listing gains have reduced sharply when compared to the previous year’s performance. Refer our special story on IPOs to know more on what lies ahead in CY18 for the IPO market. 

The current market situation is such that one need not hurry and buy stocks in the market. The stock prices are not in a mood to sprint higher. Investors can use this consolidation phase in the markets to identify bottom-up investing opportunities and construct a long-term diversified portfolio. The quality mid-cap and small-cap stocks that are beaten down sharply may present a decent opportunity for investors in the coming days if the underperformance in this space continues. The disproportionate fall in mid-caps and small-caps may not sustain for long and the catch-up exercise may lead to some gains in the mid-caps and small-caps going ahead. Till the time we see a confirmed trend in the broader markets, sticking to large-caps is advisable. 

Show patience in the market and the market will reward you. Buy for the long term and buy in a diversified manner. 

Happy Investing!