Well, in the past few days, one new found myth stands broken – Indian markets can hold their steed even if FIIs scoot as DIIs are now as big buyers if not bigger buyers than FIIs.
That is not true as of now. In the trading session between 1st Oct and 5th Oct, FIIs sold off equity and debt to the tune of Rs.9300 crore – Rs. 7,094 crore from equities and Rs 2,261 crore from the debt market. And this comes on the back of Rs.21,000 crore they pulled out of the Indian markets in the month of September.
The only grace here is that FIIs are pulling out not only in India but all over emerging markets. So to some extent it is a global phenomenon but at the same time, FIIs are taking a long and hard look at the domestic issues currently confronting India.
Rising oil prices, falling rupee, skewed current deficit account and to make matters worse, the crisis of IL&FS, management related issues in some banks and tightening liquidity in NBFCs; all together have made the FIIs very jittery.
To top it all off, they know that India has entered an election year, which in turn means that all policy decisions will be driven by politics and politics alone and less by economics. The fact that fuel prices were cut had nothing to do with concern for people; it was on account of the approaching elections in 5 states in the coming two months. And after that is over, all will brace for the Lok Sabha election dates; thus every rational decision will be on a hold.
Volatility in the markets is expected to continue for some time more. Globally, two events are important – the US sanctions on Iran kicking in on 4th November - India sources 10-12 per cent of its crude requirement from Iran. And then there are the US mid-term elections on 6th Nov – the outcome will indicate the way in which the trade tariff war moves ahead as India has deferred its decision on retaliatory tariff in response to the recent US duty hikes till November 18. The Iran sanctions are more crucial for India as we need to wait and see the kind of disruption it causes to crude output.
Having said all this, it is also equally true that the market will view positively the news about IPOs, FPOs, bonus, rights and employee stock ownership plans being eligible for a concessional rate of 10% long-term capital gains tax (LTCG) even if the securities transaction tax (STT) has not been paid earlier.
We believe that this is a great time for cherry picking. One does not know, at this point of time the amount of pain or ‘sell off’ pending in the system. If you have limited cash, best to sit on it till the situation abates. But if you have cash and do not look at day-to-day capital preservation, then its best to identify very sound companies and invest at every decline- like a SIP in select stocks. Build a strong portfolio for the long term.
Editor, Mr.SP Tulsian in this market has recommended buying Maruti, HDFC, Godrej Consumer, Asian Paints, Grasim, Bajaj Auto, SML Isuzu, Kotak Mahindra Bank, Shriram Transport, L&T Finance, Mahindra CE. All only with a long term view.