Patience Has Its Rewards

Patience Has Its Rewards

The markets are holding strong in spite of a tepid budget and no significant improvement on the ground as far as the economy is concerned. In addition to this, we still have the corona virus – now called Covid 19 – as a strong deterrent to growth. So, what baffles the mind is the issue of how the Indian stock market has continued to hold strong. All reasons point to external factors rather than India’s inherent strength at the moment. To list some of these major ones: the US stock market continues to rise on buoyant results, crude oil has stayed at low sub USD 55 levels, disturbance in China owing to the virus has potential to have some companies consider India as their manufacturing hub, the Chinese government is pumping money into their economy to counter the current slowdown, and so on.

The net inflow from FIIs and DIIs into the Indian market since the day of the budget is about Rs. 9,200 and Rs. 5,600 crore respectively. Also, with China appearing to be a weak option among the BRIC countries, the share of funds to India has increased. So, while external factors are helping to prop the Indian markets, it is very important that our country’s intrinsic activity strengthens itself quickly. To recapitulate, I had mentioned in my editorial a couple of issues earlier that a bold budget would help do the holding act, giving time for the inherent strength of the country to improve. However, while the budget has been tepid to do so, to the investors’ delight, the markets are buoyed by the external factors. However, corporate India has to get its act right quickly.

Companies need to show better earnings and strong growth soon. In fact, our finance minister recently mentioned 13 steps that the government is taking to facilitate investments and consumption. Some of these include the Insolvency and Bankruptcy Code, a Rs 100+ lakh crore infrastructure pipeline, reduction in corporate tax rate, higher support price for farm produce, direct cash transfer under PM-KISAN scheme, simplification in dividend distribution tax and roll-out of the new income tax slab structure. We believe all this will strengthen the economy in time to come. However, at the moment, we would expect the market to consolidate and provide ample time for the investors to selectively enter potential stocks. There is no need to lap up stocks in a hurry. Moreover, since the virus issue is beyond anyone’s understanding, we would like to advise our readers to hold about 15 per cent of their portfolio amount in cash till this virus mystery settles. Also, continue to keep your selection broad-based while selecting stocks.

The cover story in this issue focuses on the Q3FY20 results. We have highlighted those stocks that have shown consistency in results. This will assist you in identifying quality stocks from the crowd.

In our special story we have analysed the stocks that have shown reducing debt levels over time. We have also thrown some light on the ‘ideal capital structure’ that a firm must employ and the ‘effects of over-leveraging’. The story will help investors interpret the capital structure better and understand the consequences of buying over-leveraged stock.

All in all, equity is still a much better investment avenue over the other options available. This argument is further strengthened from the fact that collection inflows into equity mutual funds continue unabated. Nonetheless, do not rush, be selective, and keep a little cash cushion to wade through the current times.

RAJESH V PADODE
Managing Director & Editor

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