Friends – I believe this year it would be difficult to make money in stock markets. There are global risks and there are local risks.
Everyone except Trump knows that the trade war is slowing down the global economies. EU, Japan, China, India, South Korea, Latin America, Middle east – all have all slowed down.
In India, we can see slower growth in top line and bottom line of most companies. Auto industry has slowed down – Pharma industry seems to have issues with FDA authorities – the public sector banks are only focussed on collecting bad debt – the telecom sector is bleeding due to Reliance Jio – the real estate sector is affected as all the builders facing credit squeeze and only few of the organised builders with deep pockets are doing well – the FMCG sector is also talking about slower consumption in the coming qtrs. Only few industries have reported a good growth – they are -Private sector banks /breweries /Cigarettes /consumer durables and domestic appliances /Paints / Amusement parks and Airlines.
The finance minister has last week tried to undo the damage in sentiments caused by budget announcement of tax surcharge on FPI’s. Her announcement clearly indicates that the govt does not intend to give any fiscal stimulus to kick start the economy – the govt will push RBI to keep the interest rates low, will push the banks to reduce it’s lending rates and they hope that the low cost of funds and increased liquidity should get the Indian GDP to start growing faster.
I do believe that while these announcements are in the right direction – but that will not help much in the earnings recovery in the short run. These announcements will move the markets up for a few days -but not beyond that.
So what should we do?
- If you are not in equity do not enter the markets now.
- If you are already into equity, then be careful in adding more money to equity markets. Only invest in companies that are growing their bottom line – invest in good large caps which would continue to do well despite the slow down. Asian paints, Pidilite, HDFC Bank, MRF, Havells, 3M, TCS, Kotak Mahindra bank are some names that I can think of.
- If you are into equity Mutual funds – know that you will get not much ROI for the next one year atleast.
- You can add more to long term debt funds – Gilt funds like SBI Gilt fund should give around 10% as long as the interest rates keep coming down.
- Then you can also invest in Gold ETF – Gold is expected to go up due to the global uncertainties – it has already given 23% in Rupee terms in 2019 (YTD as of 26th Aug 2019) – I expect another 10% upside before the year is over.
- If you are looking at investing in real estate – then look at land for long term capital appreciation. You can also look at commercial real estate for getting 7-8% rental returns (plus some 3-5% capital appreciation). Stay away from residential real estate as investment for some more time.