190816 – The previous article Don’t Press the Panic Button got me many responses from investors across (if you haven’t read that article, please do so before reading this one). Existing investors with spare money in hand, fully invested investors, and first-time investors. I’m going to try addressing most of the concerns which came across to me
The market today is in panic mode; no investor is ready to peddle into the market currently. Stocks are getting punished ruthlessly even though they are quoting below their actual worth. The valuations are far cheaper than even 2008 crash. I remember in Jan’2008 Sensex was quoting at around 21200, and the same crashed to 7500 by Oct’2008 which was the steepest cut which most of us present then, ever saw in our careers.
With all the earnest I can say that we have already seen a 2008 kind of correction in the market today. The difference then and today is that 2008 was fast and furious, and the current correction which started in Jan’2018 is continuing even today. It has been a slow and steady grind.
People relating the correction to bringing back of LTCG, Increase in Income Tax levels for the super-rich, Taxing the FPI’s, etc. are not fully correct. 100% I agree that these did the initial job of spoiling the sentiments, but the whole correction cannot be on this. Who in the world will stop earning just because he has to pay tax?
The real reason for the steep cut in the last few weeks and the pertinent slowdown we are witnessing in certain sectors, particularly automobile can be directly related to the NPA and Debt cleansing which government has seriously undertaken. I had explained this in the previous article.
This cleansing process is going to be good; as a result, we will have better balance sheets, better auditors too. Had the world economy been strong this process would have passed by without hurting us and our economy, but sadly, the whole world is under stress right now, and hence we are feeling so much pain.
The recent proof for my thought process is the stake sale by Reliance Industries to a Saudi Arabian company. Even the imagination of Reliance failing brings pains in the minds! RIL too has huge debts in the books, and there was a report which was also circulating on the WhatsApp warning the same. The stock too had fallen almost to 1200 levels.
The market is punishing any company which has debt, Mukesh Ambani knew this before the market could react in an ugly manner, the deal got struck, and he has promised to go debt-free in next 18-24 months! We should applaud him for his business acumen.
You cannot get a bank loan easily today, and that is hurting the automobile industry in particular. And when this sector slows down many others slow with it. For example, Maruti uses 70 litres of paint every minute, so if Maruti cuts production… you got the point already!
The slowdown in the Automobile is due to various other factors too like BS VI, EV and non-availability of finance. Other sectors too are facing the brunt. As per my info CTS alone has cut around 6000 jobs in last few weeks.
The saying goes It’s Darkest Before the Dawn! Don’t forget that the Indian Micros may be going through a rough patch right now but our Macros continue to be strong. The government has already taken note of the situation and expect some measures to boost confidence among investors.
What I sense now is that we are in the bottom part of a U. Check out the results; they are down not that companies across the board have started incurring losses. One thing which has made an investors life hell is the WhatsApp forwards.
Remember we are in the darkest phase of the downtrend right now and are bound to see the dawn.
Will write more later. Feel free to reach us on the below contact details in case of any non specific stock or investment queries.
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