Time To Shun The Fads And Focus On Quality
In the week gone by, the BJP’s defeat in the state elections turned the stock market quite volatile, but the broader Indian market indices rallied, clearly indicating that the market remained nonchalant, irrespective of which party comes to power. Thereby, the market has also proved that the underlying fundamentals ultimately decide the market trends.
Post the win in the state elections, the newly-elected Congress governments in Rajasthan, Chhattisgarh and Madhya Pradesh have announced farm loan waivers. We believe farm loan waiver is just a temporary solution to farmers' problems. This move is likely to dampen the credit culture, as in the hope of a loan waiver, the farmer’s willingness to repay the loan might reduce, which in turn would lead to higher non-performing loans (NPL). However, the farm loan is a politically sensitive issue closely supervised by the government, while it also has a priority sector lending requirement. Hence, despite weak credit history, banks keep lending to the the small and marginal farmers.
Meanwhile, the country’s central bank, RBI, will further inject around Rs 15,000 crore in the money market in two tranches through open market operations in December 2018. Overall, the central bank aims to pump in around Rs 40,000 crore in December. In the month of November alone, RBI has infused almost Rs 50,000 crore in the money market. Consequently, this would be act as a cushion for NBFCs as comfortable liquidity will help them roll over their near-term obligations despite liquidity crunch.
An occurrence that is likely to augur well for the markets is the GST Council meeting to be held on Saturday. It is expected that the Council would reduce GST rates on items like tyres, consumer durables, cement, set top boxes, etc. from the present 28 per cent to 18 per cent, in line with the government’s aim to bring almost 99 per cent of goods in the 18 per cent or lower bracket.
Talking about the global market scenario, on Wednesday the US Federal Reserve (Fed) hiked interest rate by 25 bps for the fourth time in a year as expected by the market participants. However, the Fed has lowered its rate hike forecast from three to two, which indicates that its tightening policy is nearing an end amidst slower world economic growth. Amid the trade war tension between US and China, IMF earlier has cut its global growth forecast from 3.9 per cent to 3.7 per cent.
Moreover, despite OPEC’s decision to cut production of oil, the crude oil price during this week itself has fallen almost 9 per cent to USD 56.3 for a barrel. This brings cheers to India and other countries that are heavily dependent on import of crude oil. Consequently, this also serves well for sectors like tyres, paints, chemicals, logistics, airlines, etc. which were badly hit due to higher crude oil prices. In addition to this, the strengthening of the Indian rupee against the US dollar brings double delight for India Inc.
Looking at the current scenario, we would like to bring to your attention one piece of wisdom from Benjamin Graham, the father of value investing, who says “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” It means that, in the short term, it is the popularity and market fads that might drive the stock prices, but in the long run, it is the underlying fundamentals of the company that would drive the stock performances.
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