Show No Mercy On Stocks With Poor Set Of Numbers
The biggest event that took place amid liquidity crunch during this week is the nine-hour meeting between the RBI and government officials. In this marathon meeting, RBI's central board has decided to set up a committee to assess the transfer of RBI’s surplus fund to the government. Further, the RBI will ask one of its committees to look into the issue of easing restrictions on certain state-run banks that are under PCA. This development would give some relief to the stressed PSU banks. Besides, the board also decided to allow loan recast for SMEs. Moreover, the RBI has decided to extend the timeline for the full implementation of Basel III norms by one more year, but maintained the minimum capital requirement at 9 per cent. This decision to extend timeline for complying with Basel III norms would lead to relief of Rs 35,000 for the government, according to credit rating agency CRISIL. On the other hand, the global credit agency Moody’s believes that this deferment of one year is a credit negative for the Indian public sector banks.
In line with its aim of easing liquidity crisis, the RBI will inject Rs 8,000 crore on November 22 through open market operations. After hitting recent high of around $86 for a barrel in the month of October, the crude oil is now trading at $63 for a barrel, representing a fall of almost 27 per cent. This fall in crude oil price has brought cheer to the investors. Lower oil price is likely to benefit many sectors which use crude as their major raw material. The falling oil prices and strengthening of the rupee (relief for import of auto components) might act as a cushion for auto makers, who have just gone through the worst festive sales in last five years. The overall auto industry has witnessed a decline of 20 per cent YoY in the demand during the October-November festive season, according to FADA. Besides, CRISIL has downgraded its growth forecast for the Indian passenger vehicles industry by 2 per cent to 7-9 per cent on account of disappointing festive sales and piling up of inventories.
Meanwhile, the rating agency ICRA in its latest report has said that GDP growth for Q2FY19 is likely to dip to 7.2 per cent on account of sluggishness in agriculture and industry. In the first quarter of FY19, India’s GDP had recorded a remarkable growth of 8.2 per cent in the same period of the previous fiscal. The second quarter earnings of the ongoing fiscal came to an end. The buzzing stock, DHFL reported 52.46 per cent YoY jump in net profit to Rs 438.74 crore. As mentioned in the previous FNI editorial, at the end, it is the earnings that have the power to drive the stock price in the long term. Just to give more emphasis on this, we would like to bring to your attention that one of the biggest wealth creators (during 2013-18) HDFC Bank has delivered a CAGR of 25 per cent, and during the same period, its net profit recorded CAGR of 22 per cent.
“Selling your winners and holding your losers is like cutting the flowers and watering the weeds” is a very common error made by investors as they treat some of their stocks too dearly. Thus, if you are holding stocks that are reporting poor set of numbers, these stocks deserve no mercy and they should no longer be part of your portfolio. Beware and invest!
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