The high volatility in equity markets is definitely concerning and this brings us to the fact that it is extremely important to know your investments, whether it is in direct equities or through mutual funds. Even investors in bond funds suffer on debt defaults as they do not look and study the portfolio of the funds.
Fortunately for our clients, we are constantly monitoring the stocks in your portfolio and despite the volatility, you are in safe stocks.
At this juncture, there is no necessity to sell or buy and its better to wait for markets to stabilize before looking to invest further if you do have funds to invest.
The Sensex and the Nifty have witnessed high volatility in recent times with the benchmark indices falling sharply in the last few days. The Sensex and the Nifty fell by 1000 and 400 points respectively within a span of few minutes on 21st September 2018. The Sensex and the Nifty breached levels of 36000 and 11000 in a matter of minutes after panic selling in non banking finance companies led by Diwan Housing Finance Ltd and Indiabulls Housing Finance.
Infrastructure Leasing & Financial Services (IL&FS) panicked the credit markets by missing several debt repayments in recent months. The primary reason for this was series of defaults and weakening of the company’s liquidity profile along with the diminishing expectation of funding support.
The Sensex and the Nifty fell sharply today as investors feared that these defaults may extend to other companies such a Diwan Housing Finance and Indiabulls Housing Finance and further to other companies in a contagion effect. The benchmark indices showed a V shape recovery after both companies confirmed on air they do not have any exposure to IL&FS. DHFL management also confirmed on air that they have not defaulted and there is no liquidity crisis at DHFL.
We have already shunned banks, companies with huge debt and those which have corporate governance issues or political connections from your Portfolios. We remain optimistic that Your Strong Core Portfolios will weather the temporary market volatility and emerge even stronger going ahead.
Your Strong Core Portfolios continue to remain strong despite the ongoing concerns as they have fundamentally robust stocks – Highly Transparent Companies with strong balance sheets which continue to deliver on financial performance despite temporary external factors.
The expected rapid pace of interest rate hikes by the Fed in the year 2018 was the first reason why the Sensex and the Nifty began to correct. The PNB scam added to the volatility of the Sensex and the Nifty and now the U.S.’s decision to impose import tariffs on goods has increased uncertainty of global trade wars. To add to that IL&FS defaulted for the first time on inter-corporate deposits and commercial papers (borrowings) worth Rs 4.50 billion in June 2018 and again on a short-term loan of Rs 10 billion from SIDBI (Small Industries Development Bank of India) in September 2018. The market panicked as it feared this effect would get contagious and that was the reason for a sharp sell on an intraday basis on 21st September 2018.
All this is leading to a panic in the markets but if we see the fundamental factors specific to our portfolio stocks then investors should not be worried over temporary concerns.
Any scenario which directly impacts the earnings and revenue growth for the companies in your portfolios is a sign of worry and investors should wait to invest if revenues and profits are continuously declining or refusing to recover from any downturn for them.
Any other scenario where revenues or profits are temporarily impacted but are expected to recover in the long run provides an opportunity to invest in the market as the indices tend to correct for a short term.
This means that the long-term trend remains intact for companies in India and investors need not worry over temporary external factors in the current scenario.