Wednesday, 17 October 2018

5 Key financial lessons to learn from Dussehra

Dussehra is celebrated to honour the victory of good over evil with much pomp and fervour. While Dussehra is a time when eternal hope rises in the good that exists in humanity, it also brings with itself some important lessons you can implement to your financial plans to have a better grip on your finances and plan for a better future. Read 5 Key financial lessons to learn from Dussehra here;

Destroy the evils on your wealth creation journey

The festival of Dussehra marks the victory of good over evil. During the Lanka war, Lord Rama and his army encountered various hardships to attain victory. Looking at the festival from a finance and investment perspective; the festival offers the vital lesson of ridding away all the causes that poses as a hurdle on our financial planning and wealth creation journey. Surmounting credit card debts, reckless expenditure, timing the market, booking losses amongst many other hurdles are the real enemies on our wealth creation journey

Live a disciplined life

The advocacy of ‘Dharma’ or righteousness by Lord Rama emphasized on the significance of being upright, responsible and disciplined in life. While on exile or during the Lanka war, Lord Rama did not deter living a life of frugality. You too can learn to live in less than what you earn. By saving wisely, spending cautiously and investing smartly; you can apply financial discipline to cater to your current and future needs as well as your family’s needs. One way of inculcating and nurturing financial discipline within you is by firmly following a financial plan, avoiding binge-spending at all costs and investing in a regular pattern; possibly in Mutual Funds via Systematic Investment Plan (SIP)

Lead a life of patience and perserverance

When Lord Rama along with Lakshmana and Sita were exiled to the woods for 14 years and was asked to live a simple life as opposed to the luxurious lifestyle of the royal palace; he accepted his fate and maintained composure. When Ravana abducted Sita and the Lanka war broke out; Lord Rama fought the war with patience and perseverance and never thought of giving up or looking for short-cuts. These two incidents in the Ramayana signify the importance of being patience and perseverant in the hardest of times. In your life too, you may face financial hardships or you may find it difficult to avoid unnecessary expenditure. As an investor, you may get impatient while watching your money grow or market ups and downs can test your patience to its extreme forcing you to quit investing any further and derail your from achieving your financial goals. Irrespective of the above mentioned incidents; you must be patient and perseverant at all times

Protecting your finances

The festival of Dussehra symbolizes the faith in defeating all forms of evil to protect humanity on Earth. By protecting or securing your finances, the message is to create a financially sound future and shun all evils that affect your financial wellbeing.  You could protect your hard-earned money from going waste by putting it to good use; in the form of investments or insurance plans. Also, maintaining a contingency fund that helps battle your emergency needs can also prevent you from using up your savings or taking loans

Cheers to new beginnings

The Lanka war of 14 days marked the defeat of evil and paved way to newer paths. Upon returning to Ayodhya with Lakshamana and Sita, Lord Rama was crowned as the King of Ayodhya and Vibhishana was crowned as the new king of Lanka. The events during the Lanka war and the subsequent victory of Lord Rama brought a new lease of life by starting afresh. Taking cue from this; it’s never too late to tread on a path of financial freedom. You can start by chalking out a financial plan that suits you the best. If you wish to achieve your financial goals, you can always invest in a Mutual Fund scheme that is aligned with your financial goals and matches your risk appetite

Monday, 15 October 2018

10 Reasons: Why a written Financial Plan can make a difference

A Financial Plan helps you analyse your Short, Mid and Long-Term financial goals and acts as a go-to action plan document to help meet those goals. The following are the 10 key benefits of documenting such a plan.
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  1. Income: You can manage your Income sources effectively through planning, know what are your Active and Passive income streams and visualize at what stage in the future both these streams stack up against one another.
  2. Cash Flow: Manage your Cash Flow efficiently by monitoring your spending patterns. Effective Tax Planning and budgeting could help ensure your Incomes stay above your expenses resulting in positive cash flow.
  3. Investment: A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide to help choose the right types of investments to fit your needs, personality, lifestyle, and goals.
  4. Capital: Money makes money, an increase in cash savings, can lead to an increase in your capital. Allowing you to consider more sophisticated forms of investments to improve your overall financial well-being and/or providing sustainable passive income streams.
  5. Family Security: Providing for your family’s financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
  6. Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and the results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
  7. The standard of Living: The savings done by good planning can prove beneficial in difficult times. For example, you can make sure there is enough asset saved through passive incomes to replace any lost income should a family breadwinner become unable to work.
  8. Assets: A nice ‘cushion’ in the form of assets is desirable. But many assets come with liabilities attached. So, it is important to determine the real value of an asset. The knowledge of settling or cancelling the liabilities comes with the understanding of your finances. The overall process helps build assets that don’t become a burden in the future.
  9. Emergency Fund: A sudden change to the financial situation can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency. Once a constant cash flow is established and desire to invest into more sophisticated investment plan is achieved, the passive income obtained from these vehicles can provide you with that extra bit of savings and help you scale the summit of financial freedom
  10. Ongoing Advice: Establishing a relationship with a financial advisor you trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you. Like a lawyer or a doctor, your financial advisor should also be a part of your power team whom you can put your faith into.

Understanding power of attorney and debit instruction slip – are they mandatory?

To begin with, let me ask that how many of us have read between the lines in that long form that our broker gave us to sign on? Yea, those very initial documents that include your particulars, terms of services, other conditions and a power of attorney and debit instruction slip.
Not many read through all these documents with complete in-depth understanding and that is fine in most cases ‘only if’ you keep a catch of important or key powers that you are giving your broker to execute things on your behalf.
One of these key clause to understand is the power of attorney and debit instruction slip clause. In the stock market parlance for convenience, we call the power of attorney as POA and debit instruction slip as DIS.

Know power of attorney and debit instruction slip in demat account context

In our recent blog about Why every Indian must have a demat account, we mentioned the difference between a Demat and a Trading account & a Depository and a Depository Participant (DP). We open our demat account with a DP and a trading account with a Broker, in most cases, both DP and broker would be the same, however, they can be two different companies or firms too. You can only hold your securities in a demat, however, if you want to buy or sell or trade in securities you need a trading account. In case you still have any confusion around this, please have a quick look at our previous blog.
This blog is divided into eight key parts:
  1. What is a POA in the stock market?
  2. What is the applicability of POA in a Demat or Trading account?
  3. Is power of attorney and debit instruction slip mandatory or Voluntary?
  4. Know the advantages of POA?
  5. What are the disadvantages or shortcomings of POA?
  6. Why knowing the advantages of a DIS is a must?
  7. What are the disadvantages of a debit instruction slip?
  8. Which one is better for you if you are a Trader and an Investor? – DIS or POA?
Let’s get into the interesting stuff and begin understanding POA and DIS:

What is a POA in the stock market?

Power of attorney or POA is a legal document authorizing a person (or broker/DP) to execute transactions or operate your demat account on your behalf. The POA is a legally valid power or authorization that you give to your broker.
To make things clearer, POA is given to authorize a debit of online selling or delivery transactions of stocks or shares without any manual intervention.

What is the applicability of POA in a demat or trading account?

Thus in other sense, by executing or giving power of attorney (POA), you are authorizing a person to operate or manage your demat account.
POA is of two major types. One is a general POA wherein you give an umbrella POA without any restrictions. The second one is a specific POA wherein you authorize only certain clearly mentioned acts or type of transactions.
Also, further there is revocable POA wherein you can cancel the given POA at any given time.  There are non-revocable POAs as well that does not give you the power to refuse or cancel the given POAs.
Therefore, the next time you sign up for a trading account with your broker, don’t forget to enquire to know what all powers are you giving him to execute what all transactions with your demat or trading account.
Let us further understand as to whether giving POA is mandatory or it is up to you to decide the same?

Is power of attorney and debit instruction slip mandatory or Voluntary? 

The right-away answer to this questions is that POA is not mandatory. As discussed above although it’s not mandatory and says you have given POA because you were not aware of it earlier, you still can revoke it anytime as per your wish. You would also find your broker telling you that it is not mandatory to give POA however, it is suggested.
Now, how are you going to sell the stocks from your demat account through your trading account if you have not given any POA? This is where DIS (Delivery/Debit Instruction Slip) comes into the picture. So, if you have not given POA to your broker, you can still do any sell or delivery transaction by filling in and handing over a DIS to your broker. However, once you come out of the POA realm and enter the DIS world, you need to execute or fill in each DIS offline manually as this cannot be done online. The format of DIS is pre-fixed and you can always ask your broker for a DIS booklet. This DIS will then authorize your broker to debit the stocks from your demat account and sell or deliver them through your trading account.
Therefore, the bottom line is that POA is not mandatory because you can do your delivery transactions through a DIS issued to authorize your broker.

Know the advantages of POA?

1. Smooth online operations

Executing a transaction online through the comfort of your home or office as per your time is a lot easier than doing it offline. Also, the processing of transactions is smooth online as compared to offline processing. Therefore, in this case, POAs make it much simpler and smooth to operate and process the transactions. Therefore if you have signed a specific or limited purpose POA, you are going to save yourself from a lot of hassles.

2. Less time consuming

Once things go online, the manual execution hassles automatically go down. If you have given POA to your broker you no longer need to fill a DIS and handover or submit to your broker in time to execute a delivery transaction and thus save a lot of time that these tasks to take.

3. Saves on cost

Manually going up to your broker or even sending your DIS via courier to submit it involves cost along with time. And if in case you are unable to submit the DIS in time, you might have to suffer the penalty and other related costs of not delivering or completing with sells transaction on time.

What are the disadvantages or shortcomings of POA?

1. Unnecessary clauses added in the POA document

You need to be cautious here, any clauses taking powers from you beyond delivering or selling the securities are to be understood and enquired before you actually assign the POA. A lot of brokers would add unwanted clauses only to expand the umbrella of their powers.

2. Misuse of powers in the given POA

Many brokers or DPs would often misuse the powers in the POA like at times the broker may take the authority to even sign certain documents on your behalf and some brokers even deny services in case you refuse to sign a POA, which is completely incorrect as no services should be denied on such grounds.

3. Unwanted actions or transactions executed on our behalf

For example, executing trades without our consent, open an email account in our name and receive all important information directly, transfer of funds from our bank accounts to trade etc. are some of the actions that you would really want to be kept at bay from. These seldom but do happen if the POA document contains these clauses too.

Why knowing the advantages of a DIS is a must?

1. No dilution of control

The entire control remains in your hands. As you will not be given any powers to anyone to execute transactions. Or even make decisions on your behalf.

2. No debits or charges without your approval

Let us discuss the above. Some brokers or DPs misuse the powers given in POAs. They may misuse it to make certain debts in the name of recovering random or unknown charges. Sometimes they may use it to recover some costs from your account as well. This thus helps to avoid any such unknown auto debits.

What are the disadvantages of a debit instruction slip?

1. Cumbersome

The major drawback around DIS is the manual intervention and work involved. Filling in a slip, delivering it to your broker or handing it your broker is a cumbersome process. It is not so simple if you do it on a day-to-day basis.

2. Time-consuming

All of this takes time and efforts. While in the case of POA it’s a one time job. With you giving your POA to your broker. The broker will then automatically process the transaction each time on your behalf. POA enables him to do so without any hassle and also in no time.

3. Not suitable for multiple and frequent transactions

The more the number of transactions, the harder it gets to fill in, execute and keep a check. Check of all the DISs that you have issued.

Which one is better for you if you are a Trader and an Investor? –power of attorney or debit instruction slip?

Here is the important question and here is our answer on power of attorney and debit instruction slip. If you are an investor and do not deal frequently, DIS would be a better and safer choice. However, if you are a trader, DIS would be a lot of hassle for daily and multiple transactions. Therefore, just enquire well and go for POA. You can always do your own if(s) and but(s) before deciding. Remember you need to submit a DIS on the same day of selling your security. Else your security will go into auction!
A few words of caution for you:
  • Only sign a specific and revocable POA.
  • Be mindful of all the extra powers that your POA document is listing down and enquire from your broker.
  • Never give a blank signed DIS to your broker or anyone, its as good as a blank cheque.
  • Always ask for a copy of your submitted DISs and keep a record of it.
What’s more is we have experts with us. Experts waiting to assist you in finding a resolution to Demat Account and Demat related power of attorney and debit instruction slip questions. Get started right away and get the best advice

Saturday, 13 October 2018

6 Things to analyze while investing in Indian stocks

Investing in Indian stocks is rewarding only when you choose stocks properly. Choosing a stock that may fetch a handsome return in future. Further, it is completely dependent on how well you understand the business. The business whose stocks you plan to buy shares in for your own portfolio.
You need to select stocks from a wide variety of options. You can choose a stock of a well established mature company like that of Infosys or Tata Steel. This you need to do when you don’t want to take high risk. Or if you want to take a little bit of risk, you have the option of some mid-cap growth-oriented company’s share. Besides, even if you are expecting some extraordinary return in the short run and wish to take high risk. you can choose any news based on small-cap stocks.
In any case, you always know that investment in stocks must be backed by solid fundamental facts. But the question arises, what facts & figures you need to watch out for? So here is the answer. Moreover, you can find all the information on your choice of stocks in just one click
The art and science of selecting stocks are hidden in the sex steps as discussed in the following infographics. Checking quotes, assaying performance and seeking competitions details is to start with the process. Thereafter we need to deeply get insight from the financial reports, and analyses the information therein along with keeping track of the Industry scenario within which the company operates is very crucial.

Monday, 8 October 2018

After DSP will other MFs too face redemption pressure?

When DSP Mutual Fund received a redemption request from its corporate investors on the debt fund, the real reason was that the client was a tad worried. The fund has a large exposure to the bonds issued by IL&FS, both in the long duration and the short duration. A sharp fall in the NAVs due to a rating downgrade meant that the short term funds started showing losses. That immediately triggered sell orders from treasuries. With a huge redemption request, DSP needed to generate the requisite cash. It could either sell the G-Secs in its portfolio, but that would mean booking losses in a rising yields scenario.
The better option was to book the loss in private debt where there was anyways an element of risk. That is exactly what DSP did when it sold bonds of Dewan Housing at a huge discount. As against the market yield of around 8%, DSP sold the bonds at a yield of 11%. That means, an Rs.100 bond was sold at Rs.82, incurring a large loss in the process. That triggered worries in the equity market that there were similar problems in DHFL too and that is what led to the sharp crash of 60% in DHFL in a single day. Other HFCs like Indiabulls were also not spared as they too relied on the short and medium term bond markets to raise funds on a continuous basis.
How the rating downgrade triggered the panic
The whole problem started when rating agencies downgraded IL&FS drastically the moment the default broke out. The downgrades were swift and very drastic. The long-term ratings of the parent entity IL&FS were downgraded multiple notches from AA+ to BB on September 8 and then to D on September 17. The short-term rating was downgraded from A1+ to A4 on September 8 and then to D on September 17. Similar rating actions were witnessed across debentures and CP on several other group entities – IL&FS Financial Services, IL&FS Tamil Nadu Power Company Limited, IL&FS Energy Development Company Limited, IL&FS Transportation Networks Ltd and IL&FS Education & Technology Services Ltd. The main reason stated was the sharp deterioration in the risk profile of IL&FS. That was the starting of the trickle-down effect. But the big question is whether this story can become much larger than just one DSP MF selling bonds? Or could it become something much larger where there is panic selling in bonds and also equities wherever companies are found to lack in transparency or whether there is a risk of maturity mismatch.
Will it really impact the mutual funds?
It would be naïve to believe that mutual funds in any way could be immune from this series of downgrades that IL&FS has faced. Mutual funds have a major exposure to the bonds issued by IL&FS, which were generally preferred by mutual funds for the higher yields that they offered. And the total exposure that Indian mutual funds have to the IL&FS is nearly Rs.2200 crores, which is not small by any standards. More so because most of these are short term instruments where there are corporate investors with their own internal risk management constraints. Secondly, there are nearly 10 FMPs that are exposed to these IL&FS bond in a big way. A default will mean that the very concept of a Fixed Maturity Plan (FMP) will be diluted as they will not be able to provide quasi assured returns any longer.
The problem may become a lot graver in the coming months for obvious reasons. Some of these exposures were due to mature in September, which were returned due to insufficient funds. Several funds held aggregate exposure in excess of 5% to IL&FS and group companies in their portfolios. Given the Mark to Market (MTM) impact on these bond prices, these funds witnessed a sharp drop in NAV. While upgrades and downgrades are expected to happen, what really hit the mutual funds, as in the case of Amtek Auto earlier, was the swiftness of the downgrade. This resulted in a significant MTM impact on bond prices. In some cases the MTM impact of the first round of downgrades on bond prices was as significant as 25%. That means; a 5% position for the bond in the fund would result in a -1.25% MTM impact, which is huge considering the low returns that these short term funds provide. For the first time, Indian mutual fund investors may see the risks of debt funds in real time. For the real impact, watch out of funds like DSP MF and Aditya Birla; where the exposure to the IL&FS group is in excess of Rs.600 crore each. But DSP and Aditya Birla are much larger in terms of AUM. The real problem could arise for AMCs like BOI AXA, LIC MF, Principal and Tata MF, where the exposure although smaller is a significant proportion of their overall debt exposure.

Friday, 5 October 2018

What is OMO and will RBI use it to tackle yields and liquidity?

If you open the bond markets page or the economy reports, the one concept you will often get to hear is that of Open Market Operations or OMOs in short. The government through the RBI intervenes in the money markets and bond markets in many ways. The main purpose is to maintain balance and stability in the bond markets. Bond markets can become unstable if the yields become too volatile or when the liquidity in the market becomes too volatile. There are 3 broad ways in which the RBI intervenes and regulates the rates and liquidity in the debt markets:
  • Use of repo rate trajectory. We see this being done by the Monetary Policy Committee (MPC) once every two months. The repo rates are the benchmark for lending and borrowing in the market and the RBI can raise or cut these rates to send signals. In the last 2 policies in June and August, the RBI had hiked rates by 25 basis points or 0.25%.
  • The RBI also regulates the bond and money markets through reserve requirements. Banks are required to maintain CRR and SLR with the RBI in the form of liquid deposits and in the form of SLR securities. These requirements can also be shifted to regulate the liquidity and rates in the market.
  • The third method is called open market operations (OMOs), where the RBI will buy or sell government securities and the same will be used to infuse and absorb liquidity in the markets. When liquidity is too high, OMOs will imply selling bonds to absorb the liquidity. When the liquidity is too tight, the RBI will buy bonds in the market to infuse liquidity. Recently, the RBI had announced an OMO of Rs.10,000 crore to improve the liquidity in the bond markets.
What exactly are open market operations (OMO)?
Open market operations are conducted by the RBI by way of sale or purchase of Government securities (G-Secs) to adjust money supply conditions. Why does the RBI do that? The RBI sells G-Secs to suck out liquidity from the system and buys back G-Secs to infuse liquidity into the system. These OMOs are often conducted on a day-to-day basis with a view to balance inflation while helping banks continue to lend. The daily OMO figures of the RBI are disclosed on the RBI website. The RBI uses OMO along with other monetary policy tools such as repo rate, cash reserve ratio and statutory liquidity ratio to adjust the quantum and price of money in the system. We have already seen the three principal tools above.
What is the relevance of OMOs under different conditions?
In India, liquidity conditions tighten in the second half of the financial year (mid-October onwards) due to a slowdown in government spending and at the same time the onset of the festival season leads to a seasonal spike in currency demand. Moreover, activities of foreign institutional investors, advance tax payments, etc. also cause an ebb on flow of liquidity.
That is where the RBI intervenes because if liquidity gets too tight then call rates may shoot up sharply and skew the entire money market equations. The RBI manages the availability of money through the year to make sure that liquidity conditions don’t impact the level of interest rates that the RBI has targeted to maintain the delicate balance between inflation and GDP growth in the economy. Liquidity also has another very important implication. Liquidity management is essential so that banks and their borrowers don’t face a cash crunch. The RBI will buy G-Secs if it thinks systemic liquidity needs a boost and offloads such bonds if it wants to mop up excess money.
What do OMOs mean for investors?
The RBI’s roadmap on OMO is an important forward-looking statement of intent. Liquidity has a bearing on both interest rates and inflation rates and that is why OMOs are so critical. The fact that the RBI wants to maintain ample liquidity in the system, hints that it is now less worried about inflation and is keen that banks should transmit lower rates to borrowers. In fact, the OMO outlook also tells you about the RBI’s outlook for interest rates and inflation.
There is one more thing to watch out here. Large open market purchases by the RBI can give the government a helping hand in its borrowing programme and investors normally frown upon such measures. This is nothing but the virtual monetisation of government debt by the Reserve Bank and could have larger inflationary implications. However, when the government is reconciled to a higher fiscal deficit then the RBI has normally been accommodating towards larger government debt by way of OMO.
Sufficient liquidity via OMOs is always welcome. What the RBI needs to ensure is that such an endeavour is in sync with the largest objectives of the monetary policy.

Thursday, 4 October 2018

Is This A Right Time To Buy? Detailed Analysis of Stock Market Correction or Market Crash

Markets has fallen so drastically and with very high amount of intensity. You won’t know understand the overall scenario by just looking at the Nifty, but the midcaps have fallen around 20% this year, and the small caps, are down nearly around 30 percent!
This is really very scary and matter of a big concern if you own most non Index stocks – in fact even the Nifty Next 50 is down nearly 15 percent in 2018.

What do you do in this type of Market Crash or Correction ?

There are number of views and opinions during this hard times, and let’s see what the situation is. Small & Mid Caps have already corrected big time since budget 2018. For small caps, this is a fall to levels last seen in end of 2016, when the market fell after the surgical strike and demonetization announcement.
If, at any time in the previous year, people in the stock market were asked about times of surgical strike and demonetization time, they would tell you one thing that they had regrets that they should have bought stocks at the time of correction.
And now roughly it is nearly two years since and we had got earnings growth little bit. There is blood on the street. No one wants to buy because well, because. Tons of bad things happening and we’ll get to that, but think of this first: Are you super uncomfortable buying now? Because your stocks will get beaten up more?
If the answer to that question is “yes!”, then it might just be a best time to start buying.

SOME FACTS ABOUT BIGGEST STOCK MARKET CRASH AND CORRECTIONS

1) Harshad Mehta Scam (1992): Sensex corrected by 54% in 1 year, it jumped 127% post that in 1 ½ years
2) 1996 Crisis: Sensex plunged 40% in over a 4 year period, it jumped by 115% post that in little over 1 year
3) IT Bubble burst (2000): Sensex crashed by 56% in 1 ½ years, it jumped 138% in 2 ½ years
4) Lehman Crisis (2008): Sensex crashed by 61% in 1 year, it jumped by 157% in 1 ½ years post that
5) 2010: Sensex corrected by 28% in 1 year, it jumped by 96% in 3 years post that
6) 2015: Sensex has corrected by 23% in 1 year, and got handsome returns after that.
7) 2018: markets already 10 to 15% corrected from its peak….Now what is NEXT ❓❓❓❓
Investors who bought when market was in fear or panic during falling market benefited the most. Markets will never give an indication before bouncing back.

Why To Invest Now?

Start Buying? We are not just telling you to sell your gold or house and buy?
If you’ve been through bear markets you know one thing – they can frustrate you with their longevity and get you super impatient. Markets don’t respect your time. Markets will do what they want to do.
But you ask some questions to yourself or do some research that how long and how deep have previous falls lasted? I have some data to share since 2007 and then there was the massive crash of 2008. Let’s assume for a moment that this is not 2008 – not because it’s special but because the factors that caused 2008 were more global in nature, and the fall was more “secular” – you had even the Nifty correcting 60% as well.
Since 2008, we’ve had a few small market crash or deep correction – in 2011, 2013, early 2016, late 2016 in demonetization and the current correction. We’ve mapped out the draw downs on the index level in each such case.
As you can see, this is roughly about the same time and same intensity as the corrections in the past.
What happened before 2007? I don’t have small cap data, but the Midcap index (which is currently down about 23% from the top) has taken slightly more severe correction – between 22% and 38%. There, we may still have a little more to go, looking at the past.

Nifty Expensive Valuations

The Nifty is about 8% below it’s all time high. But the stocks in it – the 50 stocks comprising the Nifty – show a different story. Out of them, 35 stocks are down over 10% from their highs in 2018. 17 of these are down over 25% – with Yes bank, Infibeam, DHFL and India Bulls Housing finance leading the way of more than 50 percent correction.
In fact, if you look at the entire lot of stocks, about 1700 of them that we have prices for, around 1,000 stocks have fallen more than 35% from their All time or 52 weeks highs this year.

Better Earnings Growth

After almost 2 years of Demonetization and GST came into effect we had been continuously examining and analyzing that earnings will see good recovery and indeed they had shown some progress in the last quarter and also we started to see a small recovery in earnings (driven perhaps by the GST lousiness last year). If – and this is a big if – the banking sector NPA crisis also is done, we should start seeing recovery in PSU bank earnings by the December quarter and they have indeed been responsible for bringing down aggregate earnings in general. We can also see very good and stellar earnings from IT, Pharma and Textiles and other leading company in exports due to weaker dollar their profitability will improve.

Indian Economy is Improving

As we had seen previous GDP data and their forward projections which was very at the higher end that shows economy itself is doing well. Discretionary spends seem to continue as usual, and while there are some setbacks due to floods, we believe the rebuilding of the flood areas will result in an even higher interest. We hear news that petrol prices will cause inflation or hit auto sales – till now, this does not seem to have happened either.

Higher Interest Rates is already Factored in by Markets

As RBI monetary policy is in October and if they are thinking to raise the interest rates so than that this already been discounted by the stock market. And on other hand as we believe that Interest rates have been at the higher levels on the back of fear that global rates are rising fast. But we must note that Indian inflation is also in control and stable, even as the dollar has spiked up to 72. Inflation could rise of course, what with India being a importing country overall, but the problem with the dollar isn’t the fact that we are net importers of crude oil but the fact that we are not getting that good amount of inflows. Most of those inflows which India is receiving are equity inflows (FDI or FPI) and in effect, with lower inflation, the way to help our currency might actually be to reduce interest rates, not increase them.

DEBT MARKETS WILL BECOME STABLE AND NEW FRESH LIQUIDITY WILL BE INJECTED INTO THE FINANCIAL MARKETS

In short time Debt rates had become very volatile and very high due to liquidity pressures and concerns as well. But recently Reserve Bank of India announced some strong measures and which help in easing the liquidity fears substantially, and debt markets are settled and again back on track.

GOVERNMENT STEPPED IN TO EASE IL&FS DEFAULT FEARS

There was a growing concern of IL&FS is going to get bankrupt and the Il&FS default had created huge fears where people started to get scared to give money to financial companies, but even that will be sorted out soon as they in transition mode their fund raising measures to longer term products. At yields of 10%+, some of the corporate bonds in the market are at juicy levels.
Of course this spilled even more fear that more NBFC companies will get default And that fear is what makes people scared and sell in panic or when market is crashing.
Panic is a best time to buy things. Yes bank, DHFL and India Bull Housing Finance has fallen 70% or so. But along with it, a bunch of reasonably strong financial companies have cracked too. A Bajaj Finance might still be expensive, but it’s 30% less less expensive than it used to be. Even an HDFC Bank is cheaper, as is HDFC, Lic housing finance, reliance capital, L&T finance.
It will approximately will take upto 6 months for the crisis and mess to get resolved. It could happen tomorrow or may take some weeks or month time, of course. But it could easily go on till the general elections 2019. So there’s a thought – how does one buy if you want to?