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Market View for Samvat 2075

Sensex, Nifty End Flat Ahead Of Diwali, But Further Troubles May Be Ahead!
  • Let me start by wishing you and your family a sparkling Diwali and a prosperous new year! Indian equity benchmarks were little changed ahead of Diwali as gains in Reliance Industries, TCS and ICICI Bank were offset by losses in State Bank of India, Axis Bank and Vedanta
  • The S&P BSE Sensex rose 0.12 percent or 41 points to 34,992 and the NSE Nifty 50 Index rose six points to 10,530
  • Investors will make ceremonial purchases in a one-hour trading session on Wednesday to mark Diwali and beginning of new Samvat
  • In Samvat 2075, Nifty clocked least gains in three years as it rose 3.13 percent, data compiled by Bloomberg showed
  • In today’s trade, eight of 11 sector gauges compiled by the National Stock Exchange ended lower led by the Nifty PSU Bank Index’s 2.2 percent drop. On the flipside, the Nifty Media Index was the top gainer, up 0.9 percent

I would like to take this opportunity to explain couple of things you would have noticed over the past few weeks. 1. Modus operandi in trade and 2. Profit booking or sometime even exiting with booking smaller losses. SiRoSa Wealth feels the market is poised for range bound trade with a strong negative bias and hence would like to protect it’s clients principal whenever needed. In this mode of extreme caution you would have seen we sometimes foregoing even a possible upside than facing downward trend. We would like to capture the trading profit in this range bound market but at the same time would like to protect the liquidity for the possible downturn to acquire stocks at an attractive valuation. Also We want to reiterate that trading allocation will not cross 50% and will be limited to the chosen universe of identified securities. Pls note the approach will change based on market situation and dynamic. You would also have seen us virtually doing nothing during the end August, September beginning as the prevailing market situation (no volatility, no significant movement within our universe whereas high-risk mid cap and small caps were taking a beating) warranted us to take that approach. But now there has been significant volatility within our chosen universe giving us to book profit for our clients and building war chest for a possible downturn. Our expectation is Nifty can take around 800 point dip before 15 December and we should be ready to capitalize that opportunity for our clients.

Good stocks at an attractive valuations, but headwind from multiple factors stopping us to go all out
  • There may be a lot of variables affecting the stock market, but the prices—far better than they were eighteen months ago—will bring cheer to Indian equities as we enter a new year
  • Indian equities currently face uncertainty from a number of sources—the U.S. Federal Reserve’s rate hike, the upcoming election year, growing trade tensions between U.S. and China and a liquidity crunch in India’s credit system stemming from infrastructure lender IL&FS’s defaults on payments. The benchmark S&P BSE Sensex, which gained more than 27 percent in calendar year 2017, has gained only 2.45 percent in 2018.
Turbulence in Indian Financial System: ” Is this India’s Lehman Moment?”
  • Indian financial markets have been going through a turbulent period over the last couple of weeks. Stock markets have slipped and shares of banks and non-banking finance companies have taken a big hit. The government and the regulators have made statements to assuage the markets and restore normalcy. On Monday, the government moved to supersede the board of Infrastructure Leasing & Financial Services Ltd., which had roiled financial markets due to a series of defaults. The Reserve Bank of India, too, has stepped in with liquidity support
  • While the actions of the government and the RBI may restore some degree of calm to the markets, we must use this moment to recognise the deeper problems in the Indian financial sector that this episode has exposed
  • Non-bank lenders need to refinance or replace about Rs 1.52 lakh crore in November as debt matures
  • More than Rs 31,000 crore of commercial papers have been redeemed in the first three days of November, according to reports by Edelweiss and ICRA. Nearly Rs 16,000 crore were redeemed on Monday alone, the prominent among them being Dewan Housing Finance Corporation Ltd.’s Rs 1,150-crore paper
  • The housing finance company, in a statement, said it repaid close to Rs 1,775 crore, and is in the process of raising further liquidity. The company has also offered to buy back all commercial papers maturing by Nov. 15, according to the statement
  • A recovery of cash flow at such lenders is crucial to revive confidence in the market at a time the country is grappling with higher crude prices, weaker rupee and liquidity crisis among NBFCs following defaults at IL&FS Ltd
  • The virtuous cycle of higher valuations driving easy capital raises, followed by cheap leverage and hence high growth, will come to a halt and will reverse in some cases.
A Credit Gap

Slower or no growth for a large share of NBFCs will create a system-wide credit shortfall. This will be especially acute in segments that NBFCs’ financing dominated: real estate and construction, commercial vehicles, affordable housing, consumer durables, construction equipment, etc. Some of the shortfalls will be met by banks, especially private sector banks. But banks will be far more selective in their lending and hence, these segments will see a reduction in credit.

GDP Growth Impact

Overall, the ‘new normal’ will be much more challenging for NBFC growth and profitability. In the short run, the reduction in credit will have a negative impact on the gross domestic product. The extent of the GDP impact will depend on how deep and long the challenging conditions prevail and on how quickly banks move in to occupy the space left vacant by NBFCs. Public sector banks will have to get back to health quickly if the GDP impact is to be contained. That may require additional capital infusion in PSU banks. Most importantly, this stress will not be limited to NBFCs or Banks, it will also impact the valuation of the companies from the real estate and construction, commercial vehicles, affordable housing, consumer durables, construction equipment, etc.

Before signing off for the week, a quick outlook on US market. US goes to midterm elections tonight. Democrats expected to take over House of Rep while Republicans control senate. Relatively muted foreign policy and discontinuity of tax cuts apart from possible lawsuits and motions against Trump likely in such scenario. Results early tomorrow morning India time. This has already been factored into the market movement and any change in the above secenario may trigger different movement.

Wishing you a blessed Shyama Puja and Lakshmi Puja night and a peaceful, prosperous, healthy Samvat 2075 ahead!!