There was a sudden shortage of real money. The demonetisation caused the economic activities in the country in so many sectors including capital markets. Now that phase is over. The economy is again gaining strengths with the remonetisation that pumped more than enough liquidity into the system. It is this liquidity that is boosting the market and providing the necessary impetus to the market indices to reach the 23-month high. The 30 share BSE Sensex has traded at a high of 29,065 points to close at 28,892.97 level, while the Nifty-50 touched an intra-day high of 8980 and settled at 8939.50 points on Thursday, Feb 23, 2017. Both the indices have been closing at daily high levels for the last five trading days.
They are trading at 17 PE multiple of the 2017-18 profits of the index based companies. In the near-term, the Nifty and Sensex may surpass 9000 and 30000 levels respectively. However, the sustainability at these levels is doubtful. Though there is a possibility that the markets will show a splendid growth in the 2-3-year long-term period, in the short-term they are vulnerable to time correction. With pressure put forth by tax payments from the March third week and the liquidity squeeze by the PSU stake sales, the markets will face a temporary paucity of funds.
The investors who take decisions based on the growth in the economy will find the changing fortunes of various sectors in the system. They must change their priorities accordingly. The IT biggies like TCS, Infosys are set for large scale buybacks as the Trump policies may cause a dislocation for some three lakh so Indian software experts in the US. The intention behind the buybacks at these high rates is that the companies are not hopeful about the future. By expanding organically or inorganically is a risky proposition for them in the current scenario. So, it will be a wise thing to follow a sector shift strategy by moving away from IT shares to other stocks.
‘With the disruptive entry and plans of the world’s largest start-up ‘RJio’, launched by India’s wealthiest person Mukesh Ambani, the entire industry has been traumatised. And the changes that take place will once for all reshape the telecom sector. When the WhatsApp had launched free SMS services, globally, the telecom firms lost billions of dollars. The same history is going to repeat in India. Thus, Jio’s profits are the losses that the rivals in the industry must have to borne. In this backdrop, Idea Cellular, Bharti Tele, RCom (Reliance Communications), and Tata Tele, which are the listed behemoths, will lose their market capitalisation heavily.
No need to explicitly mention that the industry is heading for a major shake-up. After the consolidation that is already taking place, ultimately there will be only two mega companies to compete with RJio. It will take at least two years for the companies to recover from the disruptive change. The consolidation of the companies leads to the fall in revenues of the tower operators like Bharti Infratel Ltd.
The rising oil prices risk is another game changer. Mainly the airline industry can’t make decent profits in the current Q4 FY17 as they did in the previous quarters. Even the unicorns in the e-commerce sector are facing turmoil after a lot of cash-burn. However, companies like the cash-rich Palred Technologies may not face any difficulty. To sum up, the winds of business are going away from service sectors and moving towards manufacturing industries to favour them.
Here is one exception. It is the banking and finance industry, which also come under service sector that will go in the opposite way. Thanks to the demonetisation policy that rescued them. All the firms in the industry are going to perform well. Since the subsidiary state banks are merging with SBI, its stock is an attractive pick. The permissible limit for MFs to invest in the equity shares of housing finance companies is now 15%, up till now 10%.
In the case of debentures, the mutual funds can subscribe up to 40%, while previously it was 35% only. This liberalised policy will further enhance the liquidity position of the housing finance industry. Companies like Can Fin Homes, Dewan Housing, GIC Housing Finance, Gruh Finance, India Bulls Housing, LIC Housing, PNB Housing, Repco Home Finance will earn higher profits with increased liquidity and demand. These shares are favourable for investment. The changing fortunes make the steel, cement, auto components, speciality chemical companies most lucrative. Stocks of these companies will benefit the investors with good returns in 2017-18.