Editorial

Stay Invested And Watch Out For Directional Cues

The country has lost its Asia’s best stock market tag. The bear grip in the Indian stock markets has become exceedingly strong, refraining the bulls from entering at least for a bounce, if not for a reversal, which seems to be uncertain for now. The markets had strived to pull themselves up after breaching the January 2018 peak, where bulls climbed with cautious baby steps for nearly month-and-half to hit the current peak. However, the bears entered with a bang, which washed off all the gains within a month’s time frame, thereby proving the law of gravity which states that anything that goes up has to fall down at a faster pace.

This time it was a sharp fall in the NBFC stocks that was caused due to default by a lender to infrastructure firms that forced the markets to dip further. The crisis at IL&FS, which is presently owned by LIC, SBI and Central Bank of India with total 40% stake, has erupted as a Lehman fear for the Indian markets. The company owes Rs 91,000 crore loan, making it one of the biggest financial scams. The same stakeholders are forced to put more money in the company for its bailout. Further, the sale of commercial papers of DHFL by DSP MF at a higher yield rate of 11% in the secondary market added to the panic in the markets. The financials, which hold more that 35% weightage in the major indices, weakened the sentiments and dragged down the markets.

We are approaching the last phase of state elections and the markets have started taking note of the political turn of events. Maybe because the opposition has become active once again or because the existing government wants a better pre-election push. For now, we may see anxiety building up in the NDA government ahead of the MP and Rajasthan elections, with two more elections to come.

In the US, the ever-rising economic growth with dollar peaking at historic levels against other major currencies, condition of labour market and inflation provoked the Fed to hike rates. The Fed raised the interest rates by 25 bps and indicated one more hike in December, followed by three in 2019. As a result, RBI need not justify the rate hike in India. The dip in rupee, rise in crude oil prices and higher interest rates would result in flight of foreign capital. The FIIs have been the net sellers in the month of September with negative net equity investment of Rs 10,746.71 crore.

Coming back to the Indian markets, the current price levels are quite high and are least likely to sustain in the prevailing real interest rates and hence a correction is eminent. In the medium term, the elections, ongoing weak global cues are expected to keep the markets on its toes. In near term, we are nearing September F&O expiry and the new month will arrive with the release of the usual macro numbers and Q2 earnings in the later part. The consistent downturn with intra-day volatility has already banished the sleep of short-term traders. Those investors who have not booked profits earlier might have halved their earnings by now. We suggest investors to stay put without trying to average any of the stocks in their portfolios and refraining from buying on dips any new ones.