Editorial
Pick Stocks Having Good Fundamentals And Showing Good Momentum
Indian stock market bulls halted at the recent peak with an uninterrupted fall of the Indian rupee, which hit above 70 to its new all-time low at 70.40 to a dollar. Even the broader indices witnessed consolidation after hitting above their first major resistances portraying trend reversal to bullish. The demand glut for the Greenback from importers and capital outflow have weighed on the Indian rupee and, thereby, the markets. Even more, the sharp rise in the trade deficit to almost 5-year high at USD 18 bn too dragged the rupee into the trough. Apart from these factors, the continued trade war bombarding from Donald Trump by announcing tariffs on import of steel and aluminium from Turkey resulted in a crash of Turkish lira and, thereby, most of the other currencies.
On the domestic front, the corporate earnings seemed to have been discounted in the markets and that the release of macroeconomic numbers brought about volatility in the markets at the higher levels. The recently released CPI and WPI came in below expectations amid subdued food prices and correction in fuel prices. The CPI cooled for the first time after four consecutive hikes to 4.17% in July from 4.9% in June. After two straight rate hikes, the RBI must have breathed a sigh of relief seeing the CPI reaching near its target of 4%. WPI too slowed down to 5.09% as against 5.77% in June amid fall in food articles with 14.07% and 8.81% fall in wholesale prices of vegetables and fruits, respectively. Going forward, Q2FY19 results, followed by the political tussle during the months of October-November, i.e. ahead of the December elections, will govern the markets.
Talking of the investors, both FIIs and DIIs appeared to be lethargic towards the Indian equities and were seen attracted towards the debt funds due to consistent rate hikes by the RBI. The mutual fund flows have stabilised , but the flows towards equity schemes and balanced funds have slowed down to nearly 49% and 97%, respectively, in the month of July. However, SIPs have kept the markets going, with retail investors maintaining inflows indicating that the long term view on the market remains intact.
Apart from the export-driven stocks, Indian markets are very good for the growth stocks which have withstood all the global and domestic hiccups. Further, the markets are also good for the stocks that have bottomed out and have initiated bullish reversal with robust Q1FY19 and FY18 annual numbers. However, just because the headline indices are at record highs, it does not mean that one can enter all stocks to average down the cost price or recover previous losses.
Buying on dips in the current scenario would mean catching the falling knife, while selling at the peak would mean loss in profits that could be realized on holding the stocks even at the record levels. Hence, avoid buying just because the stock has hit 52-week/ all-time low or square-off the position at 52-week/ all time highs. Recognise the ‘why' in the rise and thereby ‘what' you can enter in. Every time is a good time to enter the markets, all you need to do is to pick the right stock having good fundamentals and showing good momentum.
(Subscribers can send their feedback and queries on technicals portfolio guide to fnieditor@dsij.in).