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Detailed Market Overview September 2019

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Market Sentiment Summary

In debt markets, in the last 12 months, there has been an unexpected down grading of certain securities of IL&FS, Zee, DHFL, YES BANK etc. and the mutual fund AMCs had to mark the entire holding in these funds to zero in their portfolios. This is the reason that suddenly some of the debt funds are giving low returns.

Debt funds give loans to companies, sometimes these companies go through a rough patch due to which they are unable to pay back the loans/interest on time. In such situations, as per SEBI guidelines the value of these loans is to be treated as nil and hence the NAV of the debt fund will fall considerably in spite of its actual value being higher. What this simply means is, for example, if the loan given to them was 100 Cr, today its value in the fund books is 0. Once the company repays the loan amount, the NAV will partially or fully recover and the performance of the fund will bounce back.

But it is expected that as and when this issue is resolved, the debt fund returns will again improve. It is not advisable to exit these debt funds if the holding period is less than 3 years (no indexation benefit would have accrued), the risk-reward is in favour of holding them.

Equity markets over the last 12 months, have been in turmoil –

Looking at the Equity Market in Detail

₹ 18,00,000 Crore Loss in M-Cap Since Jan 2018

The loss is more than India’s market value in April 2007;

ONGC alone lost more than ₹1 lakh crore, Maruti Suzuki and Tata Motors other big losers

Indian companies, excluding the top 15 performers, have lost ₹35 lakh crore, or 29%, of market capitalisation since January 2018. The loss, on account of slowing economic growth and lack of revival in corporate earnings, is more than India’s market value in April 2007.

The overall market capitalisation of all companies declined ₹18.56 lakh crore since January 2018. But for the resilience shown by the top 15 performing stocks, which have added ₹13.34 lakh crore in market value during the period, the losses would have been sharper.

Three stocks — ONGC, Maruti Suzuki, Tata Motors — have lost between ₹88,000 crore and ₹1.10 lakh crore in market-cap since January 2018. Other big companies such as Vedanta, Indian Oil and Yes Bank have seen erosion of market-cap between ₹66,000 crore and ₹77,000 crore during the same period.

Foreign institutional selling has been one of the major reasons for the underperformance of a large number of stocks. Foreign Portfolio Investors (FPIs), who sold nearly ₹36,000 crore worth of Indian equities in 2018, have pulled over ₹20,000 crore out of stocks since this year’s budget on July 5.

“Divergent performance across sectors and companies within each sector have been high in the past few quarters as only few companies have reported good earnings growth during this period,” said Pankaj Pandey, head of research at ICICI Securities. “This is expected to continue till we see a broad-based earnings recovery.”

Among the top 15 performers, Tata Consultancy Services alone added ₹2.6 lakh crore in market value. Reliance Industries and Hindustan Unilever added over ₹1.8 lakh crore, ₹1.11 lakh crore and ₹1.10 lakh crore, respectively, in market capitalisation since January 2018.

Volatility and Down Cycles are part of the game

“In the short run the market is a voting machine. In the long run it is a weighing machine.” 

– Benjamin Graham

The aforesaid clearly describes the nature of equity markets over different time periods. In the short run markets respond to the noise of investor emotions like fear and greed, are driven by factors that are far removed from fundamentals. However, in the long run markets tend to be driven solely by fundamental factors such as economic growth, corporate performance etc.

Riding all of the stock market’s ups – and none of its downs – is a popular fantasy. Who wouldn’t want to skip rough patches such as the current period.

Risk is not inherent in an investment; it is always relative to the price paid. But uncertainty is not the same as risk. Indeed, when great uncertainty – such as the current fall – drives securities prices to especially low levels, they often become less risky investments. However, it is not easy to stay back and witness fall in portfolio value. As someone aptly said, The only intelligent thing to do when such turbulent change occurs is for us to sit back and realize that we are only to be witnesses to change, and to respond to it rather than to react to it – much like we would watch a movie unfold on the screen and laugh at the funny bits and cry at the sad bits, while always knowing that what is happening before our eyes is unreal.

Modern quantum physics after Einstein also points us this way – it says that what occurs depends upon the observer, and not on what is observed. So, in effect, as a witness, we are free to choose our responses, and therefore the reality we actually experience.

Your Investments Need TIME

As Legendry fund manager Prashant Jain from HDFC AMC said – While funds proudly display NAVs of Rs 400 and more, only a small minority of investors have experienced similar wealth creation. This is because the vast majority of investors moved in and out of equity funds several times in this period, from equity funds to liquid and back, from lower-rated funds to higher rated, only to witness role reversal of funds in some time. In other words, the majority frequently churned their funds and refused to stay put. Only a small minority-who simply remained invested in a few carefully chosen funds for this entire period-reaped immense benefits. Having a long-term orientation is crucial. Nothing else is as important to success.

In investing, quite often, doing nothing is more profitable than doing something. Most investors tend to watch every small move of the market, linking it to events all over the world. And despite failing in their predictions repeatedly, keep on doing so. Forecasting short-term movements of the markets is not just futile, it is also immaterial over the long term. For example, presently when the Sensex is at 37,000, what great value has been added by predicting a fall from 5,000 to 4,500 in 2004 when BJP lost elections? That’s why someone has aptly said: “Time in the markets is more important than timing the markets.”

It is great to see that Indian investors are becoming smarter. Even though the markets are in turmoil, Investors have kept faith and are still investing via SIPs for the long term.

The share of equity-oriented mutual funds in total industry assets has jumped to 45 per cent as of June 2019 up from 24 per cent as of March 2014, led by surging HNI and retail investors’ interest, according to CRISIL-Amfi.

Total assets under management of mutual funds now stands at Rs 25.81 lakh crore. The surge in assets was on account of robust inflows, consistent investment by investors in equities through systematic investment plans (SIP), and also due to a rising equity market (Nifty 50 TRI returned 12.8 per cent CAGR between March 2014 and June 2019).

Between April 2016, when Amfi started disclosing monthly SIP contributions, and June 2019, SIPs have helped rake in a whopping Rs 2.3 lakh crore. That is nearly 19 per cent of the increase of Rs 11.9 lakh crore in AUM of the industry. Share of contribution from SIPs to the industry’s AUM has gone up from around 8 per cent in August 2016 to 11 per cent in March 2019, and to 12 per cent in June 2019.

“Increasingly, investors are using SIPs as a tool to meet their long-term investment goals like retirement, children’s education and marriage. This helps even out market volatility and is a good process to follow,” says NS Venkatesh, CEO, Amfi

While investors pumped in Rs 43,900 crore in FY17, the contribution has more than doubled in FY19 at Rs 92,700 crore. During the three-months to June 2019, nearly Rs 24,500 crore came through SIPs. For the last seven months, every month the the industry has added more than Rs 8,000 crore through SIPs.

This article is based on excerpts from the following articles: