In fact, writing this article after a long gap since we have resorted to Facebook Live videos and YouTube Live videos which most find it easier to listen to. But seeing the recent volatility in the market some investors have been asking for the views which can be read through and hence posting this issue of MarketFastFood and will continue doing it almost every week henceforth. So, stay connect with the VRIDHI website by subscribing for the email alerts and click the link to find all our social media outreach pages: https://vridhi.co.in/2015/05/23/vridhi-connect/
When it comes to stock market, they will always be volatile, ups and downs are part and parcel of markets and an investor must be mentally prepared to ride all the ups and downs in his investing life. That’s why you should not be coming to markets with less that 3-5 years. Yes, expecting to benefit from the volatility can always be expected by applying timing skills to some extent. But that does not mean you will always be successful and hence be prepared to ride the waves at times.
We at VRIDHI during past few months have been suggesting our clients invest in safer avenues and last Friday have started moving those monies to Equity and Equity Mutual Funds in a staggered manner so as to ride the wave upwards as and when it comes. Is this the bottom? Will try to ponder over that below, but yes, we at present have higher levels of safety than what was there few months back.
So what brought the market down this time apart from the high valuations? The market needs a reason to correct and this time the reasons are flowing freely nonstop that has battered market out of shape with many stocks hitting the 2008-2009 lows. Bad situation! Same was the case in 2008-2009 but then those who dared to invest and stay invested made a lot of money later. Hence though bad situation, a smart investor would use this opportunity instead of fearing and running away. Time to look at Stock Investments Seriously!
India was enjoying the Crude Oil price situation, the government was very judicious in using the extra cash which came by way of taxes for paying back the Loans and controlling the fiscal situation. Our bad luck that crude went up and Rupee also depreciated which was negative for the markets.
Then comes the news of IL&FS downgrade and default. Today, let’s focus on this topic alone. IL&FS got downgraded from the A category to below investment grade in one straight shot! Serious issue! A question can be raised even on the rating agencies on why they were sleeping till now. A company which has been enjoying A grade rating for 31 years got downgraded so suddenly catching all investors unaware.
IL&FS defaulting on their payments is not a small issue. With Rs.91000/- Crs of debt, if the company goes bankrupt, it can be India’s Leman Brothers event.
The good part is that the assets of the company are not bad. Most of them can be monetised and that’s why all major shareholders are ready to increase the stake in the company including the foreign shareholder. A Japanese company also has shown interest, and Aditya Birla group and other corporates have expressed interest in buying out the businesses selectively.
Hence, it is a matter of time that the money which was defaulted will be recovered back. Moreover being election year the Government and RBI will not allow such an old institution to go the Leman Brothers way. There are assets available, the issue which has cropped up is Liquidity. You may own 10 Bungalows, but when someone comes to know that you require money urgently, people will offer less than the market rates! Hence once the large shareholders pump in money and the liquidity problem dries up, sanity would return.
Hence, don’t panic, valuations this time are cheap in select Mid and Small Cap companies. The timing can make you good money, don’t fall prey to people who say buy and forget. Even IL&FS required tracking!
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