Stock market which had seen a rampaging bull market during 2016-17 has seen significant correction starting 2018 and it continues relentlessly. Small cap index has been hammered down by around 40% from its peak in Jan 2018. While large cap has been relatively unscathed, everything else apart from top 50 stocks have fallen like a pack of cards. As per data, around 65% stocks have fallen more than 50% over last 18 months. Only less than 10% stocks have fallen less than 20%. This means majority of stocks irrespective of the industry, balance sheet health, growth rates, have fallen during this period. A question which is often asked in times like these “Are we at the bottom?” There is no easy answer to this question. It is all about probabilities. Still based on economic patterns, one can get a logical and rationale view on it. To reach there, we need to first understand the reasons behind this downfall.
The Rise of Stock Market: 2014- 2017
Below points contributed to the rise of stock market during the early days of the last bull cycle.
Brand New Government: In 2014 when new government came to power, people had put a lot of hopes and expected that Modi Government has a silver bullet to fix all problems. This fueled investor participation in stocks market.
Benign Valuations: During 2014, mid and small cap stocks were trading at a big gap when compared to large cap stocks. It was overdue for reversion to the mean.
Easy Money: Worldwide, central bankers were still printing free money which was largely lapped by big investment firms to deploy overseas emerging markets including India.
Favourable Oil & Gold Prices: 2014-15 was a period when oil prices crashed while gold prices also saw a mini revision downwards. This reduced gap for India’s fiscal deficit and allowed some room for new government to spend on infrastructure etc.
At the Peak: Sep’17-Jan’18
Super High Valuation: Three years of bull market had pushed market valuation at skyhigh. It was only a matter of time when it would normalize. However, such was the optimism that analysts started to value stocks with forward 2 to 3 years earnings estimates to justify valuations.
US Fed Signaled Rate Hike: During this time, US Fed announced that it is going to hike interest rates slowly to bring them back to normal levels of 2.5% from 0%. This was the first indication of a looming crash as foreign money inflow into the stock market was largely helped by cheaper interest rates.
Rise of Domestic Investors: By this time, we had significant money flowing into the stock market via SIPs. While FIIs were fleeing away after US Fed led rate hike started, domestic inflows kept market at elevated levels. However, with one of the driving force (FII) now dragging the market, it was only a matter of time when impact was to be seen.
Rise in oil prices: After hovering at $30-45 per barrel, oil also started to boil due to conflicts in middle-east, sanctions on Iran oil, etc.
Crash seems inevitable if we look back at above factors which were at play during Jan’18. Hide sight analysis is easier but also a great teacher. Economy was not moving at the pace predicted by the government & analysts. It was only a matter of time that domestic flow will crack, leading to downgrade of the market.
Downhill from the top: Jan’18 till present
Economy is still slumping: During past 18 months of market correction, the valuations have descended down to sane levels however it was now economy which played a spoilsport. With earnings falling down, the possibly benign valuations went up without any increase in stock price. Thus more correction follows.
Oil & Gold Price on elevated levels: Oil has stayed around $55-65 per barrel and refuses to come down as OPEC cartel have learned their lessons in 2014. This put limitations on government spending power as it has to first fix the gap in fiscal deficit.
Fed rate hike has peaked: The current interest rate at 2.25% seems to have peaked and it is making dollar costly, resulting in FIIs continuing to exit emerging markets like India.
Government Decisions: Government has decided to impose new taxes on super rich and FPIs. These decisions on an already slowing down economy is only going to hammer down the market. While tax collection is not a bad thing but it has to be be introduced gradually by consulting impacted parties. Most of the decisions of the government has been down in isolation, leading to sudden chaos in the market. One prime example is the long term taxation on equities which woke up the bears.
PSU Bank & NBFC crisis: Just when India needed liquidity to expand businesses and economy, there were two interruptions to liquidity. One during demonetization which crippled growth for a year. Another one came exactly after an year, the default of IL&FS & NBFCs. PSU Banks who serve majority of the banking requirements in India is cash strapped due to high NPAs. So overall even if economy could have possibly grew this stage, there was no fuel for growth.
Trade War: Another global factor hindering economic growth globally is the US-China trade war perpetuated by Donald Trump administration. This is hurting both economies in general while certainly few US based businesses will be enjoying it since they are getting US market share back from China. Overall, people of United State will likely suffer in near term as there will be a slowdown amidst costlier products, produced locally in US.
Promoter of a company plays a huge role in ensuring company’s success in the future. After all, promoter is like a jockey who carefully navigates company on narrow bends and accelerates on straight paths. It is therefore very crucial to have great brains behind a business. This is more important for smaller companies where promoter’s vision can help leapfrog the company into bigger leagues. Today on AI Post, we will be taking example of Wipro and its maverick chairman, Azim Premji. In a recent announcement made by Wipro, Azim Premji will retire upon completion of his current term ending June’19. Going forward, his son Rishad Premji will be taking over the reins of India’s fourth largest IT company. We will also discuss on how a villager made tons of money by investing in Wipro almost by a chance. Let’s dig deeper.
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In today’s article on AI Post, we will cover the evolution of startup industry in India and its impact on the economy. We will start our discuss from the origins of the startup culture in India and which way it is likely headed. For simple illustrations which everyone can understand, we will be taking examples of Uber, Ola and Flipkart. Same trend is getting replicated in other startups as well. A good Sunday read, which may take approximately 8-10 minutes to finish.
Today in AI post, we want to share our honest & candid discussion with a senior investment banker based in Mumbai. I know him since school days and is one of my good friends. He started his career in sales, later got promoted to wealth manager. A career spanning more than two decades in which he worked in both Indian and MNC financial institutions. So, he has seen working style of different institutions across various levels.
Over last weeks, we met a few times and during the course of our multiple free-flowing discussions, we discussed about various practices in Indian banking industry. Our banking industry is greedy which is a known fact. There are a lot of malpractices but the extent or breadth of it is rather discomforting. I want to share this information with our ace readers so at least you are aware of it. With my friend’s permission, below are the excerpts from our conversation which can be very insightful for innocent investors. For privacy reasons, I will refer him as Mr Banker in this article.
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So far in 2018, AI Post published a total of 43 articles with two more articles to go. As we draw curtains to year 2018 and get ready to welcome 2019, it is time to reflect back on the success and failure of the last year. We covered wide variety of topics ranging from stock market to technology trends to investor behavior & current affairs. We hope you enjoyed reading these articles and it helped you to gain some confidence in equities.
Today on AI post, our editor is handpicking six top articles from AI post which we think were pretty good and full of common sense. Here are these six posts.
Investors are spooked by the uncertainty arising from various state elections and general elections in next five months. There is a common belief that if ruling party comes to power it will be good for the stock market. Any adverse result may put stock market into the tailspin. In today’s post, we are trying to analyse from two angles, one from what historic data tells us starting from 1980s and another from what common sense tells us. Let’s find more details about it.
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This concept was originally published as part of our Tiny CAPS report on 18 Nov’18. To suit AI post, certain portions have been modified for easy understanding.
Today’s AI post focuses on the behavioral aspect of investment. Emotions play a far larger role in wealth creation than any high end analytical or robotic capabilities. In equity, your EQ (Emotional Quotient) matter more than your IQ (Intelligence quotient). There is a famous saying from Warren Buffet that “Buy when there is blood on wall street and sell when there is euphoria”. I know you have read it several times all over the internet but are we able to implement it when time is right? Currently, there is blood on at least dalal street which means we should be buying Indian stocks right now but how many of us have that courage to do it?
If this question was asked last year, I am sure many would have said, “Surely, I can implement what Mr Buffet is saying during next stock correction”. Knowing the path is one thing, walking down that path is another. Do you know why this happens? Fear, of course is one short answer but we are looking in-depth here. What induces this fear? How come last year’s confident & aggressive investor has transformed into unsure & risk-averse investor. This is what we are trying to answer in today’s AI Post. We have coined this phenomenon into a term “Bear Market Brainwash”. Let’s read about it.
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This is a question which every investor thinks at some point of time. The question is “How do rich people or so-called super investors invest their money? They must be investing into the best opportunity available in the market. So I shall do the same.”
There is nothing wrong in aspiring to create more wealth out of small sums of money but every strategy has some pros and cons which must be understood well before blindly following others. In this article, we bring some unorthodox investment strategies which many rich investors deploy in the hope of market beating returns.
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It has been a bad year in equities for everyone. Stock prices started falling since Jan’18 immediately after annual budget. There was a little respite in between but again recent round of correction has broken the backbone of most portfolios & demats. In such market conditions, stock quality goes for a toss as bears will not spare anyone, the good, the bad or the ugly.
Naturally as an investor, we are all worried and there are a lot of queries clouding our mind. Sensing that, today’s AI Post is focused on addressing frequently asked questions (FAQs) from investor community under current market conditions. Trust this helps!
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Title of this post may surprise you but once you finish reading, you will understand my point of view. On AI post, this time we thought to write something which not only benefits us financially but also physically. As my father once said “Better to run on tracks than later run towards hospital”. I am sure most investors or traders are glued to computer screens ignoring health concerns & pushing themselves to the limit. It is not a good habit and may hamper your investment success as well. If you are one of them, then this article is dedicated to you my friend.
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Today on AI post, we have monkey as a central topic 🙂 No, we are not kidding. Today, we are sharing a famous fable (tale) from the world of financial literature which can benefit you on this leisurely weekend. It is an interesting tale with a few turn of events which teaches as many valuable lessons of investments in a funny way.
We have always maintained that small cap stock investment is way different from a large cap or vanilla stock investment approaches. This is very well understood at institutional levels but somehow when it comes to retail investors, people are happy to advise same approach for all. While basics remain same but mental model of a small cap investor has to be way different. It needs more mental toughness and firm belief to be successful small cap investor. There are not many text available on internet which focuses on pure small cap investment in India context. We are doing our bit as part of AI post to benefit our Ace Readers.
In this article, we will share why we think small cap investment is different and we hope you will benefit from it.
We have been following different investment gurus across the world and applying their investment philosophy on Indian stock exchanges. While many international gurus have never invested in India, today we are writing on our own desi guru Mr. Kenneth Andrade. He is a famous investment guru and held in high regards within analyst community. True to our philosophy, we are keeping the language simple and contents precise. Hope you enjoy it.
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AI readers will know that we are stitching up a series of articles on famous investment gurus. While none of them are into Indian stock market, we are applying their philosophy to search stocks within India’s small caps universe. Interestingly, since we have started this series, bullish momentum seems to be back into small caps. What a co-incidence! All investment gurus have theories aligned for long term investment but to our surprise, some of the stocks published under initial articles have gained 20% in short term. Certainly, their investment philosophy works in unique ways.
Coming back to the article series, today we have another legendary investor Walter Schloss on AI post. True to our philosophy, we are keeping the language simple and contents precise. Hope you enjoy it.
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In tennis, the word “unforced error” is described as a missed shot that is entirely a result of the player’s own blunder and has nothing to do with opposition’s skill. Mostly the player with lesser committed unforced errors wins the game. In investing also, if we can minimize unforced errors, the chances of getting multibagger return shoots up.
World of small cap investment is full of risks & rewards, but at times investors tend to go overboard & increase their risk unnecessarily. Blindly taking more risk does not increase return, in fact it’s detrimental to your wealth. In this article, we will figure out the most common mistakes which many small cap investors commit. We believe if a small cap investor can manage “unforced errors”, there is no stopping of his wealth multiplication.
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So far stock market correction (barring largecaps) has been spectacular. If we leave out the big event corrections like 2007 crash (led by proper financial industry collapse), this is indeed a historic correction for non-event periods. However, if you are in quality stocks, stay there and wait out this storm. If possible, add more on dips. Definitely dump garbage stocks. In our own stock watch-list (used for paid recommendation), new stocks are getting added every week as small & mid cap continues to tumble and becoming more attractive. Equity as an investment is best played over long term. Timing the market is futile as Mr. Market is full of surprises. Now-a-days general feeling is that stock market will not perform until 2019 elections but who knows what Mr. Market has got under his sleeves.
Coming back to the article series, today we have another legendary investor Peter Lynch on AI post. We had published similar posts on Warren Buffet (click) & Benjamin Graham (click) as correction is one of the best time to buy stocks. True to our philosophy, we are keeping the language simple and contents precise. Hope you enjoy it.
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If you are a long term investor then ongoing correction is more of an opportunity rather than disaster. Currently, we are in a phase where there are plentiful opportunities. If you have the right process & patience then in the next couple of years, some of these small caps will touch a new high and in the process shatter previous all time high records. Coming back to process, we can take a clue from legendary investment gurus and apply their investment process to unearth such hidden gems.
@ AI post, we are writing a series of posts in which we publish stock watchlist of famous investors by applying their filters on Indian small cap stocks. Last week, we had Benjamin Graham (click here to read) and today we have Warren Buffet. We are keeping the language simple and contents precise.
“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffet
Correction is indeed the right time to be greedy, click here to join our services!
Smallcaps have fallen like a pack of cards. Correction has been severe but much awaited after sharp rally over the last couple of years. This correction has also opened up many exciting opportunities. This is the time when ace investor will buy promising smallcap stocks to enjoy multibagger returns in 2022-23.
We have seen a full cycle within smallcaps. This cycle gets repeated every 5-6 years. Last time it happened around 2012-13 and ace investors enjoyed returns few years later. However, mastering this is not easy since in every cycle, multibagger stock name will change. Today’s multibagger may not necessarily survive this correction. So, key to superlative gains is to wisely choose next set of multibagger stocks.
@ AI post, we are writing a series of posts in which we will publish a stock watchlist of famous investors. It may be wise to analyse what legends will buy in today’s market post correction. This list is curated by us based on their principles. More than stock list, there is a lot of learning as we touch upon investment principles of these legends.
We want everyone to understand the concepts and since we know that people don’t have more than 5 minutes of attention span, so we are keeping the language simple and contents precise. For the purpose of this study, we are running filters only on smallcaps, so midcap & largecap are not considered. True to our ace reader’s interest!
Today, we have Benjamin Graham. Next week will be his disciple Warren Buffet.
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This year small & mid caps are witnessing good amount of correction. This is not a normal correction but a deeper one as there have been multiple rounds of mini corrections within this phase. The euphoria of small investors has vanished as they get depressed with huge losses, especially those who made fresh entry in Jan’18 are finding it hard to digest. In this article, we share our thoughts & views on how to handle such deep corrections.
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