Indian stock
market recorded one of the largest gains on the last working day of October
2014. The benchmark as measured by CNX Nifty scaled up by 154 points taking the
index to 8322. On a year to date, market has appreciated by 32%, being the best
performing equity market index among the world’s 10 biggest markets. Japan’s surprise expansion of massive program,
domestic de regulation of oil prices, proposed opening up of coal sector, and
relaxed rules for FDI in construction coupled with a sharp 24% slump in the global
crude oil price were the major contributors.
The impact of
fall in oil price will soften the country’s fiscal, current account deficit and
inflation. The impact of each of these constituents will have a cascading
effect on the country’s GDP. Since inflation as measured by Consumer Price
Index is showing steady signs of deceleration, there is a case for a potential
rate cut in the near term. Lower inflation will boost disposable income and
push consumer discretionary demand. Falling input prices would lead to improved
profit margins for the corporate sector.
Investors who
missed the recent equity rally should start allocating funds to diversified
large cap equity mutual funds in a calibrated manner. There is again a lot of
buzz like in 2008-9 regarding Infrastructure funds, trying to capitalize the
current market momentum. Excepting a few, most of the infrastructure companies
are plagued by high debt, project execution delays due to Legal and regulatory
reasons and Poor cash flow. For instance, GVK Power, GMR Infra and JP associates have a
high debt equity ratio of 5 to 7 times. The company’s interest cost has also moved
by 20 – 30 fold from 2008 -9 and have reported losses at the PBT (Profit before
Tax) level for the second year in a row. A quick turn around in most of the
infra companies are unlikely given that they are struggling to pay off their
old debts. Similarly, PSU Banks have also been hit due to their high exposure
to infra sector. Investors should avoid funds having high exposure to Infra
sector and PSU Banks.
The following table would give an
insight regarding the historic long term performance of these sectors.
|
|
NIFTY
|
CNX PSU BANKS
|
CNX INFA INDEX
|
|
YEAR TO DATE
|
32%
|
45%
|
32%
|
|
2 YEAR CAGR
|
22%
|
10%
|
15%
|
|
3 YEAR CAGR
|
16%
|
5%
|
7%
|
|
5 YEAR CAGR
|
12%
|
3
|
-0.30%
|
Happy investing!
Disclaimer: Views
are personal. No content on
this blog should be construed to be investment advice. You should consult a
qualified financial advisor prior to making any actual investment or trading
decisions. All information is a point of view, and is for educational and
informational use only. The author accepts no liability for any interpretation
of articles or comments on this blog being used for actual investments. Source:
nseindia.com. Table Performance as on 31st October 2014
