Position Yourself In Capital Protection Mode, For Now
This needs time to sink in! It was so near and yet so far. This week was all about dejection for the bull camp as well as for the Indian cricket fans. The Indian cricket team displayed tremendous performance in their campaign, winning bulk of their matches until the semi-finals. However, at the knock-out stage, a hard fought battle was lost and the Indian team made a sad but sudden exit. The story on Dalal Street was no less dramatic. After marking a low of 11625, the bull camp drove the index through the 11,980 level on the eve of the Union budget, taking it within a striking distance of the all-time high. But certain announcement made by FM in the budget did not go down well with the market participants such as surcharge on income tax for super rich, proposal to reduce promoter shareholdings to 65 per cent and buyback tax of 20 per cent on the listed companies. The bears began their relentless hammering and, as a result, the markets cracked sharply. The quantum of the fall was so huge that in just two trading sessions over Rs 5 lakh crore of investors' wealth vanished in thin air. On Monday, the markets saw one of the worst days in the recent past as the markets recorded biggest drop on a single day for the calendar year 2019. To sum up the story, the old adage on the D-Street sounded so true: 'Bulls walk up the stairs; Bears jump out the window’. That’s just a metaphorical way of saying that the market tends to drop faster than it rises. Overall, the Union budget introduced measures that will boost economic growth, productivity and employment without impairing fiscal revenue receipts. We believe it sows the seeds for success in the long term.
During the week, there was considerable attention on the stock-specific front with the poster boy of IT industry TCS kicking off the earnings season. However, TCS disappointed with slower growth and softer margins. Meanwhile, haunted by the slowdown concerns, the stocks of Bajaj Finance and Bajaj Finserv witnessed one of the sharpest intra-day fall in over five months. Also, the stock of Titan Industries saw one of the biggest decline since 2013 after its Q1 updates indicated a muted growth for the jewellery business. Last, but not the least, the stock of Indigo crashed after a spat between the airline’s promoters spilled out into the open over issues of excessive control and corporate governance.
The Wall Street has witnessed a roller-coaster ride, but it has somehow managed to climb its way to hit a fresh all-time high as the tech-heavy Nasdaq Composite index registered a record closing high on Wednesday. The week commenced with investors’ concerns surrounding interest rates as better-than-expected employment report threw cold water on rate cut hopes. However, on Wednesday, Federal Reserve Chairman Jerome Powell’s Congressional testimony revived rate cut hopes. Jerome mentioned that ‘cross current are weighing on the economy’ and the Federal Reserve will ‘act as appropriate’.
In the coming days, the earnings season would pick up pace and the mood on Dalal Street Q1FY20 remains dull, much more gloomy than it was at the end of Q4FY19. The tight liquidity situation, delayed monsoon and tepid rural demand are some of the key factors for the market participants not showing any enthusiasm for Q1FY20. Also, markets participants will keep their eyes on crucial macroeconomic numbers that can move the markets, which are scheduled to be released in the coming days.
How should you trade now? Generally speaking, you should move towards stocks which provide margin of safety, choose value over momentum, and position yourself in the capital protection mode. The market is expected to remain range-bound or consolidate in the range of 11,300-11,600 for quite some time with stockspecific action as we enter Q1FY20.
