Even PSU banks can be hit … As HNI may invest directly in corporate bonds instead of via banks and retail investors may invest in corporate bonds through Mutual funds .
As liquidity improves … Good quality Corporate may decide to focus more on corporate bonds to raise money rather than via banks . ( .even beyond 25% Min limit )
Apologies, if I am digressing but is this good news for Rating agencies?
Edit: I believe, it will eat into their bank loan ratings but would have more debt issues.
Not sure … how that will pan out … Few guesses
If Corporate bonds needs to be rated by Min 2 agencies … then that expands the market . This is for only 25% of debt requirement …
Now for rest 75% corporate needs to go to banks and that may require usual engaging of CRAs
Last couple of weeks have been interesting … Mood has changed from bear market to semi bull market …
Iran sanction waiver on Crude Oil till May 2019 election means we may not have government to part a lot in terms of tax revenue ++ OMC and upstream oil companies will be spared …
Fed truce with Trump and slowing interest rate hikes means we too may not require interest rate hikes rather RBI can loosen credit and interest rate a bit with crude being down
Now all this means rupee will be stable and FII may not exit in big way as anticipated …
So what can go wrong now
Though state election results are minor hiccup – But if adverse in big way – it can make Government take steps which may not be fiscally prudent – Other non development issues may take center stage leading to possible loss of productive hours on account of strikes / hartals etc
Trade war expands leading to China slowdown and crash in commodity prices aka 2016 or possibly worse as interest rates are high as compared to 2016 …
AUTO sales have already declined in big way in China s - cascading impact on steel , auto components will be lead second phase of bear market …
Corporate debt in US is very high - High interest and slowing Chinese demand can be double whammy – > leading to cost cuts and slowing US & other market demand
So from Jan 2019 - May 2019 will be interesting time – One needs to active investor in these times to overcome threats and leverage opportunities –
Markets will make fresh highs, that is almost a given. With the big Elections around the corner, government will want the people to be happy.
we should load on cash on dec 11th for any knee jerk reactions to find bargains…but if the govt gets a setback…do you think they will be a friendly middle class appeasing intern budget on Feb1? think only middle class is unhappy now…farmers has MSP and loan waivers and poor have insurance and many social schemes…
I am sharing my broad opinion, rather feel of market. A month back we saw comments flooding calculating nifty @ 17 PE level and all that. Many targeted buying at lower level. However market bottomed out before most of our anticipation.
Last week secular rise, is turning the story from bottom out discussion to semi bull situation.
However I think these are like mood swings as per market movements. I think real value is there is select mid caps and many small caps. Nifty sensex are significantly overvalued. However, due to lack of quality, transparency and recent HFC, YB fiasco has created some fear. Due to which money is flowing into large caps inspite of being overvalued…
I had brought +ves and -ves in macro in above post - how this will impact Indian market is big question which I have never been able to predict .
So will market make new highs or lows in next few months —> I don’t know …
But one point one need to understand … Wealth has been eroded across countries & across asset classes in last 2 months
FAANG stocks have lost a trillion dollar in valuation : Imagine a person whose portfolio moves down from $ 1 million to $ 0.5 million - will not buy new luxury goods … Will try to conserve money .
https://www.cnbc.com/2018/11/20/techs-popular-faang-stocks-have-lost-945-billion-and-counting-from-highs-amid-tech-rout.html
Chinese Internet stocks have crashed big time and also overall market is down - All new age high spending millionaries are losing their paper value
Bonds values are down - leading to reduction fixed income NAVs - Imagine pension funds taking call to reduce their pensions to seniors …
Crypto assets too has lost over hundred of billion in market cap this year
In India too most HNI pf are down in this year & most equity advisories are having tough time explaining performance to their clients – are they going to be aggressive or conservative or start booking profits moment the stocks move higher is big question …
It is bear market for most asset class across world … rightly so with higher interest rates and ending of QE across EU and US … No easy money now …
Only player with cash can think of being bull - but use/ deploy cash judiciously …
Rightly said. QE money has stopped. Now any reason like FED being hawkish, will be strongly reflected is the markets.
I may have mentioned in my posts, the logic why PE 17 is a reasonable valuation for Nifty, but wouldn’t have specified a time period of its occurrence. It is a lost battle to time the market, but it is possible for one to take certain steps to ones advantage when the market is in a certain phase, like BUY < 20.
There are some really good companies in the mid and small area, which will do a bang-up job in their respective businesses over the long term. But, I am wary of having any of that when Nifty is scaling 27 PE. But, at PE 17 they are going to be priced at a great risk reward ratio. The only challenge is to be in cash at that time.
FII flows after many months has turned positive in November and they are chasing liquid large cap stocks and the sensex is rising. However broad market is still in bear phase. Many mid cap stocks like Rain Industries, Avanti etc are hitting 52 week lows alternative days. Till you have a broad based rally, nothing much can be read into this rally. The hot money may flow out as swiftly as it came if macros which seems to be turning fizzles out. Anyway operators who were lying low seems to be active again.Getting everyday unsolicited penny stock recommendations by SMS.
Shouldn’t the approach be stock-specific rather than looking at Nifty PE? If a stock is available at a particular price we are comfortable paying or if we think as its intrinsic value, should we not buy it? What have broader indices to do with a particular stock if we have a arrived at a price to buy by some thesis?
Thesis is the operative word here.
If one believes in a theory like DCF etc, and is convinced that his overall portfolio will do well on it’s basis, then give it a whirl.
I, for one, believe to get desirable results any theory should be applied only when the overall exuberance has been normalized.
Thesis or a theory is the point of discussion here, a single stock’s individual state, the bottom-up approach is the point. Just like when the broader indices are battered certain stocks rise, there will be some stocks which are available at a reasonable price or bargain when the indices are soaring, so we should not miss those opportunities as we are not buying the index but a single stock which exists far away from the indices. And I was just referring to a thesis or DCF like model which makes a particular stock attractive despite the bullish environment.
Don’t you have a small or mid cap stock in your PF which has fallen from its highs and is available at good price?
There may be a few if I looked hard enough. But, what if that is their “true price”.
So I would have to completely rely on a theory and that is a little tough.
I have seen you talking about high PE many times, so how do you approach valuation? DCF is said to be a good valuation method (I am yet to do it myself) but if you don’t consider it, what is your approach towards valuing a company which has good visible growth for many years, tailwinds, good management. How in the past have you gone forward as you did not miss the opportunity and what was your takeaway?
P.S I am a novice investor.
Recently I have seen many value investors justifying Indian market levels based on Market cap to GDP ratio
While look at US stock mArket - something is changing
Some thing has changed in last few decades – with increased Globalisation – High value adding activities & high ROCE businesses are shifting to US and low value adding & Low ROCE business is increasing shifted to developing countries … The business in developing countries are highly commoditized & require high dosage of capital for growth …
Hence increasing by logic US market needs to have higher PE ratio as compared to developing market PE ratios as with low ROCE - Growth is not value accretive .
Over a period of time – Indian market has to lower its PE @ fair valuation - while most business will be below 12 PE , few good business should be around 20 -25 PE – Then will Indian market go Chinese market way inspite of great GDP growth in next 10 / 15 years -
I don’t know - But we need to be wary of paying up for commodity like business –
Few bullish things heard last week - Some long term — some short term
Cadilla Health Care Concall : In pharma issue is now of assured supply of drug and not necessarily who offers highest discount … WHY … Large generic companies have moved out of low profitability products creating supply vacuum –
Electricity demand growing , CERC draft guildeness … UMPP rulings … + corporate capex cycle turning around in select sectors … Can power companies come out of rut ??
Govt wants to capitalise PCA banks and throw liquidity in system – > changes thesis for short term on liquidity both for Good NBFC , Banks and stock market speculations … But come Feb post budget things could change dramatically … Good Time to exit WRONG STOCKS
OPEC production cut from 1st Jan 2019 ( delayed ) + is limited and US is not joining in … This will help India till March 2019 … but come Mar/ april scare of Iran Sanction + election can cap markets …
Fundamentally Financial services try to sell product to people who should not be buying the product
But the fun part is inspite of this incorrect targeting this industry makes huge profits … or does it …
This anomaly is possible only industry where profits are front loaded and real cost appear in future … Say I account for loan profits ( higher Nims & interest ) in Year 1 and show provisions for NPAs in Year 3 . Same happens with Insurance companies …
This is so unlike FMCG , Pharma and most other industries where cost appear in P&L first and Profits are seen in future …
Lets look this with this graph in prespective …
I see huge possibility of tech disruption when customers are overcharged + get bad service …
When is it happening … I see this already playing out … Classic case was backlash against HDFC Bank when it brought out untested version 2 of mobile app …
HDFC Bank fails to pull off a 2.0! Gets older app back after glitches in new version - BusinessToday
So how does one play this theme …
Look for industries that will benefit from financial services cartel breakdown …
This is because Wells Fargo lost a court case due to some fraud accounts. There were sanctions on it limiting the growth.
Wells Fargo has created huge wealth over past decades.
Also, do note that Berkshire Hathaway biggest sectoral allocation is financials only.
And even globally, including in India, financials carry the highest weight in the index.
