November month for the market was not any less than Bollywood movie full of entertainment. Media in India was confuse on 8th of November about which story is big, Trump inching towards victory in USA or demonetisation of currency in India.

Indian stock market closed November month as one of the biggest fall of the year so far and we had seen it is trading almost 10% below its high it reached this year.

We believe there is more pain ahead and do not expect market to rise further. In other words, there is a good chance for market to fall down then to climb from here on. Before I explain to you more in detail, let us look at how our 3 portfolios performed in November.

Nifty 500 -6.60%
Portfolio 1 -4.74%
Portfolio 2 -4.57%
Portfolio 3 -4.38%

 

All the three portfolios had outperformed against the market returns in November.

Now, why we think there is more pain ahead? Trumps victory in the USA might have not affected directly to any Indian investors but the demonetisation of currency in the nation had affected to each and every one in the nation. Talking to the families, friends, relatives and clients in India, the only one positivity about demonetisation of currency was that spending of these families had fallen down by average 25% in November. People are thinking twice to spend on anything which is less then Rs 500 in value. Think about it this way, how many times you have flashed your plastic card for purchases of Rs 50 and Rs 100 in value?

In the short run demonetisation of money will impact negatively to the businesses but in the long run it will benefit to strengthen the economy.

Many analysts, research houses and economist have come out and forecasted lower GDP numbers for the second half and also earnings growth not to clock more than 5% in the 2017 financial year. Let me take you in flash back on 31st March 2016, Nifty 50 closed at 7,738, and most of the corporates ended their 2016 financial year. When the corporates came out with their full year results, Nifty 50 posted return on equity of 17% for 2016 financial year. In easy terms if Nifty 50 is equal to Rs 100, then the total profits generated by these 50 companies was Rs 17. In total 91% of those profits got reinvested back into the businesses and 9% of the remaining were paid to shareholders as dividends.

We started 2017 financial year with the hope that earnings will grow by 20% as GST was expected to roll out. If those expectations turn out real then we were looking Nifty 50 to hit 9,900 levels in one year. To your surprise many analysts and commentators have been recorded on national television channels talking about those numbers and building an illusion for investors to invest in the market to achieve high returns.

Studies conducted on the forecast suggest that, analysts are more optimistic during the start of new financial year and express that optimism by forecasting higher earnings numbers. By the middle of the year, when reality bites they adjust their forecast and those forecasts are close to the reality.

In the middle of 2017 financial year, the expectations have been grounded to 5% growth in earnings. This means Nifty 50’s return on equity will fall down from 17% to 15% in the 2017 financial year. If we factor in this 5% earnings growth for 2017 financial year then Nifty 50 should hit around 7000 levels.

We still believe market is expensive and investors should be cautious with their money and where they are investing. Below are the 3 portfolios and how they stand as of 30th November 2016.

Portfolio 1

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 511 INR 391.10 INR 469.85 INR 199,852.10 INR 240,093.35 20.14%
Kitex garment 552 INR 430.10 INR 400.75 INR 237,415.20 INR 221,214.00 -6.82%
Castrol 533 INR 375.00 INR 407.65 INR 199,875.00 INR 217,277.45 8.71%
TCS 90 INR 2,226.60 INR 2,276.05 INR 200,394.00 INR 204,844.50 2.22%
coal india 660 INR 302.85 INR 308.60 INR 199,881.00 INR 203,676.00 1.90%
cash INR 19,758.30
Total INR 999,997.10 INR 1,106,863.60 10.69%
NSE 500 INR 5,833.40 INR 7,079.40 21.36%

 

Portfolio 2

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 515 INR 428.38 INR 469.85 INR 220,615.70 INR 241,972.75 9.68%
Kitex Garment 485 INR 430.10 INR 400.75 INR 208,598.50 INR 194,363.75 -6.82%
Indiabulls housing 298 INR 686.44 INR 765.05 INR 204,559.12 INR 227,984.90 11.45%
TCS 105 INR 2,316.45 INR 2,276.05 INR 243,227.25 INR 238,985.25 -1.74%
coal India 773 INR 306.24 INR 308.60 INR 236,723.52 INR 238,547.80 0.77%
cash INR 5,161.65
Total INR 999,997.10 INR 1,147,016.10 14.70%
NSE 500 INR 5,833.40 INR 7,079.40 21.36%

 

Portfolio 3

Name Quantity Purchase Price Current Price Total money invested Current Position Standing
Axis Bank 497 INR 432.58 INR 469.85 INR 214,992.26 INR 233,515.45 8.62%
Indiabulls housing Finance 286 INR 686.26 INR 765.05 INR 196,270.36 INR 218,804.30 11.48%
Coal India 742 INR 305.55 INR 308.60 INR 226,718.10 INR 228,981.20 1.00%
TCS 101 INR 2,320.04 INR 2,276.05 INR 234,324.04 INR 229,881.05 -1.90%
Kitex Garment 464 INR 412.00 INR 400.75 INR 191,168.00 INR 185,948.00 -2.73%
cash INR 3,348.40
Total INR 999,997.10 INR 1,100,478.40 10.05%
NSE 500 INR 5,833.40 INR 7,079.40 21.36%

 

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.