For a week now demonetization of high value notes has been polarizing
the country between those who totally support the idea and those who
are against it. The move has had a big impact on the stocks markets. A
lot of investors are withdrawing capital from stocks. Some because they
are out of funds (since the currency they had at home no longer works)
and others because they expect a crash, perhaps an opportunity to buy at
lower levels.
- Pharmaceutical stocks on a tear: 1 day after the
announcement, pharma stocks zoomed in trade. Some analysts credited
Trump’s winning the U.S. Elections since Clinton would have created
regulatory hurdles for the sector. The most interesting analysis however
came from one of my clients who called in with this – ‘Sir, chemists
are accepting Rs. 500 and Rs. 1000 notes for a few days. People are
buying 1 year medicines in advance. I think Pharma companies will
present very healthy Q3 results. Should I buy this. Genius.
- Housing finance: HDFC, LIC Housing, Can Fin Homes,
Gruh Finance, Repco home – some of these stocks have been favourites for
most fund managers (I included) over the last 1 year. The fear is that
as realty prices fall, some of the loans extended by these companies
could default. This happens when the value of the outstanding loan
exceeds the market price of the property. Ideally, these companies
should extend a loan which is not more than the registered value of the
property. Of course, the limits are often pushed. Now if you ask me, if
house prices fall, it would be the best thing to happen for housing
finance. Housing finance thrives when house prices come in the reach of
salaried people and first time home buyers, the biggest market for
housing finance. I am not sure how falling house prices are negative for
this sector.
- Banking:This is one sector which will benefit for
sure. However here to, the house seems divided between those wholike PSU
bank vs. those who prefer pvt sector banks. No doubt that money will
flow into all banks, may be a little more in public sector banks where
all of the jandhan accounts were opened. That said, once the dust
settles, pvt sector banks will continue to enjoy competitive advantages
as before. My views on this have been clear for many quarters now.
- Infrastructure: If the government’s deficit will go
down, which seems to be the intention of this move, they government
will have more money to pay for infra projects of which the direct
beneficiary will be companies in this sector.
- Consumer Discretionary stocks: Think of all
companies where transactions happen in cash. Hotels, alcohol,
restaurants, consumer electronics, cigarettes etc. Naturally, sales for
these companies will come under pressure at least for this quarter. But
how much should you worry or how much can they correct is anybody’s
guess. Usually, markets discount such one of events and if somebody
sells these stocks for these reasons, somebody else will buy.
- Impact on Gold: I have heard of people hoarding
gold. In fact the tweet below sums up the situation perfectly. Thy
person who narrated this story, told me that the tax officer bought gold
at 2.5 times its market value. The thinking here is not the most novel.
Buy gold today and in a year or so sell the gold for cash once new
notes become available. If everyone starts doing this, gold prices could
completely crash in future because of oversupply of gold. Further, many
will be overpaying for gold today and will be selling it far cheaper in
future. Of course, many would prefer to hold this gold for many years
to come. For them, the analysis of gold (read here) becomes more relevant.
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