As part of our consistent efforts to create & nurture each Indian into becoming an informed investor, we bring you a new feature –Indian Stock Market: The Month That Was – a monthly newsletter, which provides a brief update on the events related to Indian Stock Market and the economy at large. With this background, a brief summary of February month events is provided, to keep you up to date on the stock market performance and economic performance.
The month of February is normally associated with Union Budget of India – consisting of pre-budget expectations and post budget analysis. However, the month was marred by the new virus outbreak – Corona Virus or the Covid19 virus. Though the virus was first detected in Dec 2019 itself, not much information was known about the human to human transmission till fatalities started rising rapidly, impacting health and economy of China. As we stand today, the virus has spread to 80 countries, affected ~ 94,000 people and caused 3,200 fatalities. A noteworthy point is that ~ 51,000 people have recovered after being diagnosed with the symptoms of the virus. Let’s hope that by next month, the situation would have improved considerably and the world collectively takes a step forward in restoring normalcy to the population at large.
Coming back to the Union Budget announced on Feb 1, there have been mixed reactions from every corner of the society, some hailing it as the most appropriate budget in view of the prevailing fiscal situation and health of the economy, while others being dismissive of it as a ‘no-use’ budget. Retail investors had little to cheer, as expectations of any change in the Long-Term or Short-Term Capital Gains taxes didn’t materialize. While some relief was extended on the Dividend Distribution Tax (DDT) front, this largesse from the finance minister didn’t go down well with investors, as dividends would now be taxed in their hands, as per their tax slabs as compared to a lower DDT earlier.
On the other hand, sectors which could be affected positively due to budget provisions have been identified as capital goods, infrastructure including logistics, information technology, real estate, aviation etc,with some negative& temporary effects on sectors like FMCG, consumer durables etc due to increase in basic customs duty, while automotive and pharma are expected be neutral. The stock market reacted negatively on the budget day, with an intraday fall of more than 1000 points on the Sensex, while most indices closed in the red with realty index declining more than 7.5%, media by 4.4%, metal, PSU Bank and financial services by 4%. Over 3% decline was seen in stock prices of private banks and automotive companies, while FMCG and pharma stocks fell over 1%.
In the overall scheme of things, while the Union Budget remained lacklustre for retail investors, the data prints coming out of the economy weren’t encouraging and caused additional pressure on the stock market. Inflation, both rural and urban, remained high and rose to the highest in 6 years, driven upward by food articles (>11%) and telecom tariff segments. January 2020 Consumer Price Index inflation registered 7.59% in comparison to 7.35% in December 2019. Core inflation stood at a 5-month high of 4.2%.
While the stock market limped through the month, struck down by budget, corona virus, inflation etc, the closing for the month was worse, owing to the GDP growth numbers. India’s GDP growth slithered to almost a 7 year low of 4.7% in third quarter of 2019, due to contraction in the manufacturing sector. RBI data showed that bank credit growth declined to 8.5% in January from 13.5% on a year-on-year basis, led by a sharp slowdown in loans to services segment. Growth in advances to the services sector also decelerated to 8.9% from 23.9% during the same period under consideration.
The end result was evident, recording the worst week for stock markets since 2018. Investors ended up with a loss of Rs 11.5 lakh crore in the last week of February,out of which Rs 5.5 lakh crore was wiped off on the last day of the month, as stocks nose-dived, owing to a selloff in global equities, accompanied by internal issues in India. For the month of February, the losses for most indices were high – Sensex down 6%, Nifty down 6.4%, BSE Midcap lost 5.6%, BSE Small Cap lost 6.5%. The worst sell off was in auto sector – down 14.3% – followed by metals at (-)13.2%, capital goods at (-) 11.8%. Pharma and Health Care was the least affected sector at (-)3.4%.
In the last 20 years, Nifty fell more than 10% from its peak 15 times and out of them, recovered 14 times to go on to make new highs. But at the same time, in 6 of those recoveries, Nifty fall extended by more than 20% due to global issues. As we speak, Nifty has fallen from a high of 12,430 all the way to 11,250 levels and continues to grind down into a smaller range.
This uncertainty in stock markets could continue, with bouts of volatility taking the stock markets up and down. It is important to note that quality stocks, which have been at the forefront of Indian stock market for many years, are down by a good 10%-20% on an average. These volatile times offer perfect opportunities to build excellent portfolios, which can give tremendous returns over the next few years. In this scenario, we suggest all clients to opt for a systematic investment route, which would normalize these crests and troughs over the coming months.
For investors interested in ‘ready-made’ portfolios, FYERS Thematic offers various themes consisting of stocks with qualitative management, high corporate governance standards, consistent business prospects and strong financials, to weather most downturns. A systematic investment into these themes can help investors in building a sizeable portfolio, at a reasonable cost, over time. These themes are customizable according to each investor’s specific requirements and offer scope for good gains when the economy turns for the better.
We also suggest new investors to make use of the excellent educational initiative from FYERS – School of Stocks which encompasses a comprehensive knowledge base on stock markets, technical and fundamental analysis, commodities, currencies, options and options strategies. This initiative is free and open to all, with FAQ’s and timely answers to your questions from experts. We request you to recommend this initiative to your friends and family, interested in learning about investments from a credible-one-stop source.
Quoting, the Oracle of Omaha, Warren Buffett, “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” The current turmoil in the stock markets has opened an admirable window (of opportunities) to buy wonderful companies at fair prices. We do hope that you use this opportunity to build a stronger portfolio of stocks. Wishing you the best in all your investments and, do continue to follow necessary precautions, to stay healthy and safe.