After showing some reluctance in the month of September, Nifty
has resumed its uptrend and is sprinting rather quickly to regain the Mount
12K. Many global markets are also within reach of their highest levels in the
year 2020. There have been numerous factors that have supported the benchmark
indices to reclaim most of the ground lost in February –March earlier this
year, but in my view, the following five events are particularly noteworthy in
Indian context:
1. The relentless
fund raising by the Oil to Consumer behemoth Reliance Industries.
2. Dramatic changes
in the fortunes of healthcare businesses in the wake of the outbreak of
COVID-19 pandemic.
3. Revival in demand
for IT services, especially due to dramatic changes in the work and travel
practices, M&A deals and global realignment of businesses, markets and
states.
4. Strong liquidity
in equity market, as many businessmen and professionals have joined the markets
as regular trader due to full or partial lockdown in their respective regular
businesses. The spare working capital of many businesses may have found its way
in the stock trading.
5. Poor debt
returns, lower interest rates on deposits & small savings, and a number of
defaults since IL&FS fiasco in 2018 appears to have motivated many investors
to change their asset allocation in favor of equities.
I think to forecast the future direction of the market and
assess the sustainability of the up move from lows of March. It would be
worthwhile to evaluate how long these factors could continue support the
markets.
For the argument that economic recovery and corporate earnings
will support the markets from here on, I would like to mention just one
example.
The stock price of PVR Limited was Rs1178 at the end of
September 2019. In the past twelve months, the company has witnessed total shut
down of business for 6 months. For next six months it may not witness more than
50% occupancy and much lesser F&B sales revenue. The company continue to
incur one third of its regular operating expenses; the interest expense was
little higher than usual. Obviously, the balance sheet position of the company
has weakened and may continue to weaken for another year at least. The market
celebrated the announcement of opening of cinema halls with stock price rising
15% in two days. The current price is 7% higher than what it was in September
2019, with much weaker fundamentals and strong growth uncertainties.
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