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  • Jimeet Modi

    CEO, Samco Securities & StockNote
    The founder & CEO of SAMCO Securities, StockNote and the Indian Trading League Company, Modi believes that price is the most important factor in investing. He is credited with developing the AIRM (TM), an approach to screening stocks and businesses in a scientific manner. His role model is Warren Buffett.

Be safe than sorry: Looks like a disaster looming ahead for D-St

The domestic equity market weakened this week, dragging frontline stocks along with it.

Updated: Jul 20, 2019, 01.00 PM IST
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Markets are currently hoping that good corporate numbers might ease the current rout, but eventually there will be disappointment.
The domestic equity market weakened significantly this week, dragging frontline stocks along with it. Many sectors witnessed across-the-board weakness in spite of absence of any big negative news. This phenomenon wherein the market falls seamlessly without any cogent reason signals that a disaster is looming ahead.

Companies across the board have plans to raise capital, but through debt because they very well know that these times are not favourable for raising equity capital as the mood of the market is seriously bruised.

The market has taken a beating mainly due to 1) the government’s inaction to jumpstart the slowing economic engine 2) lagging trust factor in money markets, which isn’t good for healthy economic activities.

Some IPOs are being lined up to raise around Rs 5,000 crore next month, but unfortunately, they might have to postpone or cancel the issues, which will be a big negative trigger for the market on the face of it.

Capital markets are highly liquid compared with other markets, and as the economy gets thirsty for capital, everyone including the government will try and sell shares in the secondary market to raise funds, which is what the market is fearing the most. Hence, it is better to remain safe and keep your money in debt for the time being.

Event of the Week

Although optically, quarterly results may look better in the AMC business, going by the numbers of HDFC AMC, but the underlying facts need to be studied before taking a plunge. AMCs will show a boost in their bottomline mainly due to the Sebi mandate banning upfront commissions, which will reduce fees and commission as an expense in P&L of these companies to a very large extent.

But come next year, due to a larger base of PAT growth, these AMCs might not be able to maintain the same growth rate. Good numbers are sometimes deceptive.

Technical Outlook
Nifty50 has broken a major uptrend, signaling the end of the bull market rally that had begun in November 2018. The downfall will accelerate further as more and more traders shift sides and mount bearish bets.

The market has entered long and protracted corrective phase, which will test investors’ patience. Traders should wait and sell on rise.

Expectations for the Week
Markets are currently hoping that good corporate numbers might ease the current rout, but eventually there will be disappointment. Cement company ACC delivered good numbers with a 39 per cent increase in net PAT for June quarter, but this was mainly due to the government’s peddle on past spending, which may not continue in the future.

Therefore, going ahead utilisation of plants may come down and margins will contract, which will cool down the rally in cement stocks. The market, in general, will remain bearish. Investors should conserve liquidity and at the same time consider booking profits in overvalued frontline stocks.

Nifty50 ended the week 1.14 per cent lower at 11,419.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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