Why is it that when the markets are down consistently, bad and only bad news seems to come out from every nook and corner. The fact is that very same news pre-existed before the falling markets, the pessimism was always there but somehow, when the stock prices crash, this fall in overall confidence and negative news everywhere becomes all the more prominent. Is it that the poor markets are because of the negative news or is it that the negative news gains dominance because markets are negative? Egg before the chicken or vice versa; that’s the question, really.
Take a look at all the news that is doing the rounds currently:
- The contagion impact of the IL&FS crisis
- Rising liquidity crunch
- A grim RBI Consumer Confidence survey
- Society of Indian Automobile Manufacturers data show that private vehicle sales fell in September
- Rising costs of loan
- The fuel cost pushing up overall cost of living
- External trade is expected to be a drag on growth in the July-September quarter
- Fiscal deficit touches 95.3% of full-year target in just 6 months
- Services index rose at the slowest pace in four months in September amid near stagnation of new business.
- Bank credit slowed to 12.5% in Sept v/s August’s 13.5%
- Selling spree of the FIIs
- Political uncertainty due general election in India in early 2019
- Slowdown in industrial growth in August
Thus as we can see, there is a gush of negative news only; is it that nothing positive is happening in the country?
That’s how perceptions are created; the media too senses the mood and publishes news which it feels will attract more eye balls in the given mood of the people. When the overall sentiment is not upbeat, it is only bad news which gets attention; anything good gets relegated to the junk; there is simply no mood to read or listen to anything remotely optimistic. This is how sentiments work – so right now when the moods are down, a good earnings or announcement of a liberal interim dividend will have no bearing. Companies do post good earnings but it is constantly compared with estimates and then butchered down saying, “below estimates.” What we also see is that when brokerage houses put out reports, reducing price targets or downgrading, irrespective of the performance, the stock price will figure among the top five losers on the bourses. Ditto is the case when brokerage houses put out a positive report. Essentially, what this also indicates is that big brokerage/fund houses are the one’s who call the shots and that’s the simple truth.
The stock market, the pure icon of capitalism is moved purely by sentiments – economics, fundamentals and all other things come much later. That is the underlying truth – markets are driven only by sentiments.
Till the elections, the markets are expected to remain volatile. Does that mean we quit the markets till then? Not at all! The best strategy for now is to identify strong stocks and keep buying into them for long term. This is the perfect time to ride the storm out by buying good stocks when the tide turns next year.
HDFC, HDFC AMC, RIL, Century Textiles, Maruti, L&T Finance, Subros, Kotak Mahindra Bank, Auro Pharma, Sun Pharma, Shriram Transport, Britannia, Asian Paints, Motherson Sumi, Mahindra CIE, KEC International, Rane Brake Lining, Bharat Forge, Finolex Inds – keep a watch and every dip, buy for the long term.
A falling market is uplifting for the long term bargain hunter! You are simply spoilt for choice – so many stocks and so little money!