Time To Go Bottom-Fishing In Fundamentally Strong Stocks

Unlike last year, Indian stock market bulls have failed to welcome Samvat 2075 with arms wide open. Markets in 2018 have witnessed one of the worst performing Octobers, which is to a certain degree akin to that of 2008, being simultaneously impacted by domestic and global events. Nevertheless, the bulls have been striving hard since October-end conveying to the investors that the worst is over, at least for the time being and, therefore, they can start averaging their stuck positions at the current levels to recover previous losses. But beware of averaging only by judging the Q2FY19 results. Why so, because markets are yet to witness the impending domestic events and digest the ongoing weak global cues. The vulnerability has increased to such an extent that any unexpected event can turn back the markets for the worse. 

The depression in the market started off with the Union budget in January, dragging the markets down by 11% within two months. The revival in Q4FY18 results, followed by the country grabbing the top position in equity markets among other emerging markets, brought about a bounce-back in the markets. Further, the GDP growth projection inching up to 7.4% raised the optimism in the markets. The expectations of favourable monsoon for the third consecutive year kept the markets going till July 2018. However, the whole of August 2018 upmove, breaching the prior all-time highs were pulled off by stock-specific or sector-specific moves, while the prices and valuations of all other stocks had been exhausted. The interest rate hikes by the US Fed, followed by the two consecutive hikes by the RBI in June and August amid rising inflation, kept the dollar-dominated stocks elevated, but brought about correction in others. By that time, crude oil prices had witnessed a bounce-back and the rupee was in the preliminary stage of depreciation during August 2018 when the markets witnessed tremendous volatility. The sell-off by FIIs and domestic MF houses, specifically in mid-cap and small-cap stocks brought about a huge retreat in the markets. The Karnataka elections proved to be a catalyst in the disruption of the upside rally. The unearthing of the PNB banking fraud, followed by the NBFC crisis and widening of the fiscal deficit, dragged the markets further down, erasing all the gains of 2018. In-between all these events, the trade war announced by Trump specifically targeting China, had been hitting hard on the global markets--and the war is still on. 

Coming back to the current scenario, the better-than-expected start to the Q2FY19 results may have led to some bottom-fishing in a few stocks. The expectations of overall improvement in corporate earnings have helped the bulls prevent the bears from further dominance. Meanwhile, the correction in oil prices amid the rise in US inventories and Saudi Arabia’s assurance to exclude oil from the retaliation list halted the rupee from falling below 74.49. Lately, what came as a saviour to the criticism faced by the BJP on the economic front is the surge in India’s ranking in ease of doing business by 23 places in the current year and 53 in the last two years to be ranked at the 77 th place. The fact that the country has improved on 6/10 parameters has created some hope for a BJP win in the upcoming state elections, followed by the General Elections in 2019. 

The markets have not confirmed any bottom-fishing so far, though the major indices are trailing above their crucial levels. The sanctions on Iran scheduled to be imposed in the current month would decide the fate of crude, rupee and the markets. Further, the opposition parties will grab every possible opportunity to put the BJP in the dock. For investors, we maintain our view on averaging or entering at the current levels in stocks having robust earnings growth and stable management. Otherwise, stay tight is what we can suggest, for now. Traders can restart with positional trades as volatility has diminished to some extent. Intra-day traders can earn handsome returns with most stocks giving good liquidity, volumes and consistent moves with less volatility/lethargy.