October was a tepid month for the Indian markets. The benchmark indices remained almost flat during the month. Nifty50 and Sensex gave monthly returns of 0.17% and 0.23%respectively.

The indecisiveness of the markets can be attributed to slow buildup of concerns about the outcome of US presidential elections, its impact on global and more specifically Indian economy, impact of finalization of GST rates, etc.

US Presidential Elections

As per the latest update (on 9thNov), Donald Trump has been elected as the 45th President of United States. This came as a surprise (and rude shock) for many. There have been concerns about Trump’s anti-trade and anti-globalization policies. And his unpredictable behaviour is also well known to all.

As it increasingly became clear that Trump victory was imminent, Indian markets reacted with a crash and Sensex dropped* whopping 1600+ points at opening. It later ended the day with much moderate 300 point cut.

*The fall was also due to another huge announcement made by Indian PM the previous night (discussed in next section).

Inspite of the unexpectedness of the event, fact of the matter is that Mr. Trump is now the President and all countries (including India) will have to deal with it. As expected, there was a sharp selloff in stocks as people sold first and asked questions later.

The near term pain is expected to last longer as people world over come to terms with new order in the US. But given the importance of India as a trading and political partner for the US, one should not expect too many negatives for India in the long term.

De-notification of Rs 500 and Rs 1000 Currency Notes

This was a huge announcement made by PM Modi on 8th November.

Rs 500 and Rs 1000 currency notes have been banned with (almost) immediate effect. Though people can get these notes exchanged with those of other valid denominations like Rs 100, Rs 50 and newly launched Rs 2000.

As per RBI, the biggest reason for the ban is the unexpected rise in fake notes of higher denomination. But its almost an open secret that this move is to address the menace of black money in the system.

As for the impact, real estate companies will take the biggest hit. The reason is that most property deals involve a large amount of unaccounted cash transaction.

With this move, the cash component of the transaction is expected to come down drastically and also lead to a slowdown in land deals. There is also an expectation that this move will result in correction of property prices.

GST Rate Finalizations

The GST Council has come up with a 4-tier GST tax structure of 5%, 12%, 18% and 28%.

The lowest rates will be for essential items and the highest ones will be for luxury and de-merits goods (which will also attract additional cess).

The tiered structure is expected to keep inflation under check as all essential items like food, etc. will be taxed at lower rates.

Policy Rates

Newly elected RBI governor surprised markets in October with a 25 basis points cut to the key rates.

The new rate cut has once again fueled the debate about passage of policy rate cuts through lending rate cuts to final borrowers. If lenders do decide to pass on these rate cuts, it will further help boost consumption at retail level and nudge corporates to start borrowing for their investments needs.

Indo-Pak Border Tension

One of the biggest fears of last month was border tension with Pakistan and possibility of escalation to a full-fledged war.Though regular skirmishes at the border have increased in recent past, there is still no clear indication about how India will be reacting at an aggregate level.

But still if the issue does escalate in near future, there will be a valid reason for markets to correct and cool off valuations, which have been hovering at higher-than-historical-averages for quite sometime now.

Shakeup at Tata Group

India’s largest and most respected corporate house witnessed some unexpected power struggle. The Tata Group fired its Chairman Mr. Cyrus Mistry dramatically & unceremoniously.

There have been allegations and counter-allegations from both sides and the group has again brought in erstwhile Mr. Ratan Tata to find a new chairman over the next few months.

Though publically, Tata group has been claiming that Mr. Mistry was not working in line with group’s ethos and values, it seems that there is something else that is still unknown to public at large.

The group stocks have naturally reacted negatively and underperformed the sector and markets as a whole.

Research & Ranking Side Note

Unexpected new (+ unpredictable) president of a powerful country, Indian government going after black money hoarders big time, escalation in border tensions with neighbouring nations, power struggle in largest corporate of the country – all these do point to a near-term gloomy picture.

But fact is that if these events lead to near-to-medium term correction in stock markets, it can infact be a big opportunity for investors who were sitting on the sidelines till now.

These events might seem to be happening for the first time. But stock markets are decades old and have witnessed such events numerous times in past. They always come out of such events and make huge profits for those who are bold enough to invest in bad times (read more about Crisis Investing to better understand click here).

R&R Portfolio

Last month, we had launched our unique Gift Share program for new and renewing subscribers.And the response we received has been overwhelming. It clearly shows that our family of subscribers clearly believes in the real potential of long term investing.

Under the program, we give shares as gifts to our new subscribers. To know more about the Gift Share Program, read this http://www.researchandranking.com/gift-shares/

Portfolio’s sectoral allocation remains same

sectoral

We appreciate you for taking the time to read this message. Do share your views/comments by email/comment section below.

Regards
Team Research & Ranking