Monday, June 9, 2014

What to Expect from the Indian Stock Market - In the Coming Weeks

The past 2 months have been really crazy for the Indian stock market. The Sensex and Nifty have have gone up by almost 20% this year. In fact, exploding is an understatement. Both Sensex and Nifty are in all-time highs. The purpose of this article is to understand what to expect from the Indian Stock Market in the Coming Weeks...

The BULL Run - Reason

There are two main reasons why the Market is going through such an incredible BULL RUN.

Reason 1 - Foreign Investors: Foreign Investors have pumped in close to USD 7.7 billion since Jan 2014. Most of the money from Foreign Investors usually gets invested in Large Caps and Blue Chips but this year, they are preferring smaller Co.'s too. Hence the 30-40% raise in the BSE Small Cap and BSE Mid Cap Indices.

Reason 2 - Positive Investor Sentiment: Even before the election results were announced, investor sentiment was very positive under the hope & belief that Mr. Modi will win. With his land-slide victor, the sentiment has gone up even further and hence the positive momentum...

Is this Bull Run Fueled By Fundamentals?

A Company stock usually goes up if the company is doing good business, posting profits and declaring dividends. These are called the "FUNDAMENTAL REASONS". However, this bull-run is not fuelled by Fundamentals. This Bull Run is fueled by positive investor sentiment and high expectations from the Ruling Modi Government.

Can I Back-Up my Previous Statement?

Of Course I Can. Do you think I will make such a HUGE statement like this without proof?

Lets look at some of the companies that have posted double digit gains (In Stock Price) in the past 2 months:

  • Suzlon Energy - 110% 
  • Unitech - 93% 
  • Sintex Industries - 118% 
  • GTL Infra - 105% 
  • JK Lakshmi Cement - 95% 
  • IVRCL - 99% 
  • MTNL - 96% 

Does this surprise you? All of these companies have been in Dire Financial Conditions over the past year or more. In fact, most of these companies have failed to post profits over the past few quarters consecutively. So, If you can see the stock price of a company that has failed to post profits, go up by 100% in 2 months, do you think the Bull Run is backed by Fundamentals?

More Proof...

Lets look at the other end of the spectrum. Below are a few companies that have actually lost in value (In Stock Price) over the past couple of months:

  • Dr. Reddys Labs - 15% 
  • Infosys - 6% 
  • TCS - 5% 
  • ITC - 4.5% 
  • Sun Pharma - 4% 
  • HCL - 3% 

What do you see here? These are top performing companies that have consistently posted profits every year. In spite of this their stock prices have gone down. If you compare the fundamentals between the companies in this list and the previous list (of double digit gainers), you will be confused even more. Am I right?

What to Expect Next...

The next few weeks are critical to the Stock Market. The positive Investor sentiment will not last forever. After a couple of months the hype will subside and people will start looking at the results from the Modi Government. Though I have a positive feeling about the performance of the government, the expectations from the public is just too high.

On top of this, lets consider this scenario: Lets say the next quarterly results for Unitech or Suzlon comes up and they both fail to post profits. What do you think will happen? All Investors who bought its stocks during this bull run will DUMP the stock and its price will FALL SHARPLY.

In all probabilities, we can expect a sharp stock market correction in the next couple of months.

What To Do Now!!! 

Personally I would like to remind you that, dont get tempted by the double digit raise in stock prices of companies which lack fundamental reasonings. Sure, they can give you great profits in the short-run if you are lucky. However, this will not go ahead forever. It would be better if you stick to the basics and choose companies that have sound fundamentals and have the ability to post consistent profits year after year.

You will not Repent your Decision of Choosing High Quality Companies.

Happy Investing!!

Disclaimer: All the Statistics in this article were calculated based on data gathered from the Internet. Though every effort has been made to ensure accuracy of the info, the author does not guarantee it or accept liability for the same. 

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