THE MARKET SINKS ALONG WITH THE RUPEE

The market today sank over 500 points, with all sectors streaked red. The rupee also slumped to a new low at Rs.72.72. Petrol price in Mumbai is now dangerously close to Rs.90…maybe we will see that reality tomorrow?

FIIs are selling. They were sellers on Monday to the tune of Rs.842 crore. Usually when FIIs sell, DIIs turn buyers but on Monday, they continued to sell and unloaded equities worth Rs.290 crore.

And if you thought that the bond markets were recovering, there is news; they did well in August but September has been good. Bloomberg has put out a report that global funds sold $686.4 million of rupee-denominated debt in the week ended Sept. 7, the most in four months – this is more than the combined $460 million of inflows in July and August.

The falling rupee has widened the current account deficit (CAD) – almost at 2.5% of the GDP and this is a four-quarter high. This has rattled the foreign investors more than the falling rupee and this growing CAD chasm has made then very nervous.

There is no bottom yet in sight for the falling rupee and that has prompted many forex analysts to rework their rupee targets. Majority of them have predicted the rupee to settle now at around Rs.75/dollar.

And at the epicenter all this turmoil is the tension over the trade war. China has said that it will not hesitate to retaliate in the escalating trade war with President Donald Trump and the U.S., even if it means hurting itself. Trump has persistently attacked China, blaming it for unfair trade practices, imposing billions of dollars in tariffs on goods imported from China. And over the weekend, Trump threatened that he will add another $267 billion to the list.

When there is so much confusion, it is best to calm down and look at one’s objectives. If the objective is to trade, well, one has to trade off risks v/s uncertainty and be willing to face the consequences. One certainty which a trader looks at currently is – risk. But if one is an investor, which is what one should ideally be in these turbulent times, then making choice picks in strong stocks is the perfect thing to do. 

Fundamentals never go out of fashion. New technical theories might come up yet, the way we assess the fundamentals of a company remains same, irrespective of the good times or the bad times. By fundamentals we mean healthy earnings, management quality, past track record, macro conditions of the industry, debt undertaken, cash balance and above all, reputation. Today, integrity is the single most important ingredient which can make or break a company. And once fundamentals are in place, a five year time span still remains the best long term time measure.

Yes, buy and hold continues to work, paying no attention to day-to-day happenings.  Equities as an asset class always tracks earnings growth.