Over the last few months, the Indian stock market has been going through a rough patch. A flurry of challenges such as oil prices, weakening rupee, elections, trade war, etc. have gripped the Indian investors.
Prices of many small-cap and mid-cap stocks have tumbled and are now trading at low valuations.
But this was the story two weeks ago.
Coming now, the current scenario reinstates the trust in the fact that if the fundamentals of a stock and country have not deteriorated, such transient hiccups should not deter you from creating wealth in the stock markets.
The several reasons behind an investors’ agony are slowly evaporating. The unfortunate factors of yesterday are slowly turning in our favour.
Let’s have a look at each of them…
Ex-Fear #1. Crude oil prices: From spiking to falling…
Fears surrounding the shortage in supply of oil drove the narratives in oil markets over the last few months. This led to the oil prices touching four-year high in early-October. However, that story has now taken a complete U-turn, with oil prices entering the bearish zone. Now, the prices of crude oil have retraced from its peak level of $86-a-barrel to $71-a-barrel, which is a decline of close to 20%.
The ramp-up in production has lifted the oil stockpiles up, which resulted in fall in the prices.
It’s one of the amazing turnaround story considering a few months ago, few analysts were predicting that the $100-a-barrel oil is around the corner. Now, many analysts are warning that U.S. oil prices hitting $40-a-barrel can be a reality soon. Having said this, India being a major importer of oil, any decline in oil prices positively impacts the growth of our economy.
Ex-Fear #2. The closed chapters of amplified fear in NBFC’s
A quick flashback to the plight of NBFCs in India. At a time, when the biggest risk in the stock market was the liquidity tightening in the debt market, that affected the NBFC’s ability to access funds, now a different tale is unfolding in the market.
In the last few days, three reputed NBFC’s such as IIFL, JM and Edelweiss repurchased their commercial papers in the market.
What does this hint at?
Fundamentally strong NBFC’s that faced the heat of default by one of the leading housing finance companies, suffered a transient setback due to tightening of liquidity and negative sentiments surrounding the NBFC’s. With RBI intervening, the liquidity is improving in the NBFC space.
Also, considering most NBFC’s have reported healthy balance sheets and decent ALM positions, the fear surrounding the NBFC fiasco have calmed down now.
Ex-Fear #3. Weakening rupee? No longer now…
The rupee is up close to 2.40% against the dollar. With the crude oil prices falling, we can expect the dollar-rupee equation to stabilize further in the coming weeks.
Ex-Fear #4. NPA’s – The worst is over…
As per the report by CARE Ratings, most banks have reported a decline in bad loans in the second quarter of FY2018. Also, the provisions came down to 50,714 crore in the second quarter, which is a decline of approx. 12%.
This recovery from earlier provisioning is helping the banks post better bottom-line numbers, which can be reflected in declining NPA ratios in Indian banks. In the case of 13 banks, including SBI, Axis Bank and ICICI Bank, the NPA ratio has declined in the last two or more successive quarters.
Ex-Fear #5. Tax collections
GST collections in the month of October 2018 crossed the mark of Rs. 1 lakh crore on account of lower rates, lesser evasion and higher compliance. With this, gross direct tax collections for F.Y. 2018-19 (up to September 2018) stood at Rs. 5.47 lakh crore, a jump of 16.7% as compared to the corresponding period of last year, while net direct tax collection improved by 15.7%. This upward trend in tax collections will positively impact the growth of the economy.
What does all this indicate?
The Benchmark Indices BSE Sensex is up by 4.5% in a matter of 15 days. Backed by strong sales, PAT growth and robust consumption, the share prices of fundamentally sound good companies have surged by 10-15% backed in just a few days.
But there’s a catch here…
As we said earlier as well, few investors are hunting for reasons to worry, while few are taking note of all these opportunities to create wealth in the stock market.
As of now, we would like to conclude with a quote by Erma Bombeck, “Worry is like a rocking chair: It gives you something to do but never gets you anywhere.”