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Posts Tagged ‘Inflation

Weakening Rupee & Dividend Yield Stocks

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Weakening Rupee & Dividend Yield Stocks

With the rupee weakening by more than 19% this year we find ourselves caught up in an inflationary environment despite a series of rate hikes by the RBI. India Inc is now caught in a scenario of slack demand, rising input costs ,wage costs and interest cost coupled with MTM losses on its FX loans. In such a scenario it is no surprise that Infosys continues to remain a safe heaven for investors as it will continue to report earnings growth and has proven ability of displaying the best organic revenue growth among leading IT companies over the past 10 years with a return on capital of more than 65%.  

As the market continues to hide in IT stocks like Infosys, TCS & HCL Technologies in times of rupee weakening, the thirst for good dividend yield stocks beyond the NIFTY FIFTY is still prevailent and we find that the steep rupee depreciation has now caught up with some of the so called “Dividend Yield” stories which are part of the BSE 500. One such example is the Pune based pipe producer – Finolex Industries which apparently has a dividend yield of 7% at the current price- but one look at its debt equity and import intensity is enough to get the sense that earnings would degrow thereby casting a shadow on such dividend yield themes. It is for this reason that we like free cash generating business and prefer to buy such business for dividend yield despite low growth and when you do get growth out of such business then you reap it big like in the case of the cigarette company – VST Industries.

 

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Written by Fundamental Side

December 16, 2011 at 12:46 pm

Tight Lending Puts India’s Growth at Risk

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Earnings disappointment is a huge risk to the markets expectation from Indian companies.

Infosys may be the harbinger for not so good corporate news going forward.

Inflation, high interest rates, political challenges and one can continue the head winds that the Indian corporate will face going forward.

The crude oil prices are hovering well above the $100 mark, and with no indication of that cooling in the near term high Inflation would continue to worry the developing economies.

With the inflation numbers revised upwards from previous projection of 7% to 8% by the RBI, interest rates would continue to remain higher. In a regime of high interest rates the cost of credit for major Indian companies increases.

Also other factors such as political turmoil and other global challenges are getting tougher to grapple with.

FII Flows:

Even though flows into EM markets was positive, there is marginal outflow from India specific funds as reported by fund-tracker EPFR Global in the week ending April 13. So the picture from fund flows seems mixed.

Technical Picture:

The 5930 level on NIFTY has now become critical and today’s reversal keeps the bearishness of the market intact.

A break below 5730 will definitely open up test of the 5200 lows and potential break of that.

Only above 5950 and 6000 levels will we be comfortable that we are only in a range and not in a bear market.

Written by Sayanta Basu

April 21, 2011 at 4:38 pm

Posted in Market Watch

Tagged with , , , ,

Dare to be Bear

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The stock market is at a highly vulnerable point, both fundamentally and technically.  Fundamentally, the current rate of economic growth is unsustainable and the valuations have now faced significant challenged.  Technically, the market is overbought and is losing momentum.

Fear of Inflation was the beginning rationale for the markets to lose some strong gains, this was followed by worry on corporate earnings and now its spreading to a challenge to the growth of Indian economy, and that whether or not it can sustain such high levels of growth amidst such high inflationary expectations is one thing which the markets are waiting to see with bated breath.

Suddenly, we are now trying to justify the magnitude of fall on our markets with some sort of correlation with the global markets or other markets ,such as commodities etc. Unfortunately, Indian indices have managed to beat the so called hypothetical estimates of a support and is drifting lower and lower as I write. I think, the problem so far is a local problem as the price is justifying, however, there are chances that it can spread or atleast have some effect on other markets, but that will take some serious time and effort.

If you follow reason far enough it always leads to conclusions that are contrary to reason – Samuel Butler.

So is this the market environment where I want to make that big bullish bet? From where I stand, the answer is no. The reward to risk is highly skewed in my opinion to the risk side of the equation, and this isn’t because of sentiment alone. The market may go higher, and if it does, so be it. I will participate if the reward to risk profile, as I have defined these metrics, improves. Trading and investing is about managing risks. If you don’t want to assume that responsibility of managing risks, then you should be a buy and hold kind of investor.

The best strategy (if there is one, at this point of time) is to wait with patience and watch the markets. Protecting your portfolio is ideally recommended, and we could also look at reducing the size of the same. Hope is one sentiment which fails to impress me time and again in markets strictly, because of the deep pains it can give, and test the patience of every investor/trader.

One thing is for sure that the markets are not insensitive, they just don’t care.

 

 

Written by Kunal Bothra

February 8, 2011 at 5:10 pm