181012 – In the last article I had mentioned that we have started moving funds into equities in a staggered manner since valuations have started looking fair. Markets post that day have not moved much. We saw a big down day after Dow and Nasdaq fell post the comments of US president. Though the day was down, Indian markets fell much less compared to all other markets.

US markets fell steeply even on Thursday, but Indian markets bucked the trend particularly since crude prices were down. In fact, I on my Facebook profile had mentioned in the morning that things look positive. The day went as expected. You can click the link and join me on FB.

Sensex hit a high of 38990 on 29/8/18 and has closed at 34733 on 12/10/18 a drop of almost 11% while on BSE 500 index hit a high of 15938 on 3/9/18 and closed at 13906 on 12/10/18, a drop of 12.75%

In short, I should say that the correction has been healthy and reiterate that one should start looking at equity investments a bit more seriously now. Though the Sensex and BSE 500 have corrected between 10% and 13% approx., the micro-caps and small caps have been battered out of shape. Many of them may never recover and this cleansing process happens during every deep correction. Even this correction will clean many such companies. PC Jewellers, Gitanjali, Manpasand, Noida Toll, are few examples, the promoters will have to take great efforts to lift them up again.

So what makes me say start investing here on? Please keep in mind that when I say start, it does not mean jump in Monday morning. Markets will still be volatile and hence do the entry and the exit with help of your financial adviser. This page is giving you a broad guidance and not any specific idea on a stock.

Again, So what makes me say start investing here on?

Firstly, FII’s have been sellers in Indian markets till now in India. When do FII’s sell? Generally, they have either sold when they have been themselves facing problems or when they had confidence in valuations in their own country.

Whatever may be the reasons, one thing is historically clear! Whenever investment was made during FII’s dumping, the next two years good money was made. Around 49% of BSE200’s stake is held by the promoters, around 24% is held by the FII’s, around 6.5% is held by Mutual Funds and around 6.5% is held by Banks and Insurance companies. Around 27000 Crs of selling has been done by FII’s till date, which is just single-digit percentage points of their holdings in BSE200.

Five years back had this sort of selling taken place, markets would have tanked much more. This time the interest in markets is much higher and in spite of some SIP’s in Mutual Funds getting cancelled, almost around 6500 Crs of money is flowing into the system month after month and that is cushioning the markets.

Secondly, nothing is wrong with the fundamentals of the Indian economy as made out by certain sections of the society. We have recently entered the Top 5 Economies of the world feat.

What does an economy require to grow? Roads, Rail, Flight and Mobile connectivity, Ports, Waterways? India has been spending tons of money on all these in the last few years! We are set to and bound to grow!

Thirdly, the earnings of Indian companies have finally started growing. We have been waiting for almost 3 years for the corporate earnings to pick up and finally, they have.

What can be the biggest risk to Indian markets?

Crude oil remains the most critical issue. India imports almost 44 Lac barrels of oil per day! That’s huge. Every dollar increase in crude prices burdens us with Rs.44 Lacs x 74 per day! That’s huge! Convert the amount to monthly and yearly, you will be shocked. Crude prices have increased by almost 30 dollars in recent past.

I am not still worried about the crude prices. The world is moving fast towards electric and the prices will remain under pressure. The Indian government is also serious about reducing the use of oil dependence. Even today PM Modi has chaired a meeting regarding this.

Hence, we are somewhere near the bottom on the index. Many stocks may have already made the bottoms. Call your Financial Adviser and start your investments.

Thanks

Vivek Karwa