Fed spoils party at Dalal Street & Wall Street
Surabhi Upadhyay, like other astute commentators, had anticipated that the surge in the markets would continue after the FOMC meeting of the Federal Reserve.
“Did the #FOMC just extend the party?” she asked in her trademark chirpy style.
Did the #FOMC just extend the party? key takeaways incase you missed them:
–#FederalReserve to NOT hike rates at all in 2019
– Fed to end balance sheet reduction by Sept
– GDP growth forecast cut from 2.3% to 2.1%
– 2019 Unemployment rate seen @ 3.7% vs 3.5% est in Dec#stocks
— Surabhi Upadhyay (@SurabhiUpadhyay) March 22, 2019
However, what was not appreciated is that the decision of the Federal Reserve to not hike interest rates has ominous consequences because it implies that the US economy is on a weak footing and is growing at a slow pace.
The Federal Reserve said Wednesday that the United States economy was SLOWING more than it had previously thought and painted a far less rosy economic picture than the White House as it left interest rates unchanged and signaled no appetite for raising them in the near future. pic.twitter.com/fqmn6PxbYJ
— Rocky (@World__Champ) March 23, 2019
Breaking News: The Federal Reserve downgraded its outlook for the U.S. economy, and suggested it won't be raising interest rates at all in 2019. https://t.co/9oUehvzTJn
— The New York Times (@nytimes) March 20, 2019
Naturally, the stock markets tanked like a ton of bricks.
The Sensex plunged a mammoth 400 points while the Nifty plunged below 11,500.
Sensex slips 400 points from highs to close below 38,200. Nifty bank 426 points off record high of 30,008; HDFC Bank top loser pic.twitter.com/ZcTDuupe0y
— CNBC-TV18 (@CNBCTV18Live) March 22, 2019
Market fails to hold onto its opening gains & ends the day in red. Nifty fell below 11,500 mark while Sensex closed 400 points down from its highs. @SurabhiUpadhyay gets a wrap of the day's market action. #Dalalstreet pic.twitter.com/h98TTS1cJE
— CNBC-TV18 News (@CNBCTV18News) March 22, 2019
US recession & global slowdown is coming?
By the EOD, investors in Dalal Street and Wall Street were running around panic stricken because CNN announced that a “leading indicator of a US recession and concern about a global slowdown” had spooked investors.
The Dow Jones plunged a massive 460 points.
The Dow fell 460 points Friday as a leading indicator of a US recession and concern about a global slowdown spooked investors. The index shed 1.8%, while the S&P 500 closed down 1.9%. The Nasdaq plunged 2.5%. https://t.co/0WrEFQfJQZ
— CNN Business (@CNNBusiness) March 22, 2019
— CNBC Now (@CNBCnow) March 22, 2019
Apparently, the spread between three-month Treasury bills and 10-year note yields has “inverted” for the first time since 2007.
An “inverted yield curve” is regarded by economists to be a leading indicator of impending recession.
Is US heading for Recession?
The spread between three-month Treasury bills and 10-year note yields inverted for the first time since 2007. An inverted yield curve is widely understood to be a leading indicator of recession.
— P R Sundar (@PRSundar64) March 22, 2019
"I can't see a recession!". "Where's the recession!". I can't tell you how much I hear this every single day. It's like saying "I can't smell the carbon monoxide." By the time you "see the recession", your head's sliced off. Such a ridiculous statement.
— David Rosenberg (@EconguyRosie) March 6, 2019
Slowdown in Indian economy is real
Sonia Shenoy was also not her usual cheerful self.
Instead, she was tense as she pored through data which shows that the Indian economy is wobbling.
“The slowdown is real,” she mumbled with a slight tremble in her voice while reeling out statistics which proved that the auto sector and the airline sector are down in the dumps.
The slowdown is real.@siamindia data shows Auto sector growth slowed down to single digits across most pockets
SIAM DATA- April-Feb 2019
Passenger cars up 3% at 20.4 lakh units
2W up 7% at 1.97 cr units
CV up 19% at 8.95 lakh units
overall industry sales up 7% at 2.43cr units
— Sonia Shenoy (@_soniashenoy) March 22, 2019
Air passenger traffic growth slows down to lowest in 5 years
Air passenger traffic up 5.6% YoY in Feb at 11.3 million
Sudden fall in passenger traffic due to rising air fares
monthly growth Trend
— Sonia Shenoy (@_soniashenoy) March 22, 2019
auto ancillary suppliers tell me they will cut production by ~8-10% to align with OEM production cut
new emission and ABS norms from april 2019 will increase prices and hit demand further
cost of 2 wheelers above 125cc to rise by 7850rs/bike from april 1st, 2019 due to new norms
— Sonia Shenoy (@_soniashenoy) March 20, 2019
Shankar Sharma opined that the “sole pillar of Indian growth – consumer spending – is grinding to a halt“.
He explained that crunch in NBFC funding owing to the ILFS crisis is the root cause of the problem.
Looking at the sharp production cut commentary given by Maruti, Bajaj, one can surmise that the sole pillar of Indian growth- consumer spending- is grinding to a halt. Cause? NBFC funding collapse. Overall low eco activity. Markets as usual in la la land
— Shankar Sharma (@1shankarsharma) March 22, 2019
However, he was quick to add the soothing disclaimer that small-cap stocks are relatively immune to the economic crisis and are unlikely to plunge as much as their large-cap peers.
Small caps are not much connected to overall eco cycle. They are less vulnerable to macro trends
— Shankar Sharma (@1shankarsharma) March 22, 2019
Nifty will plunge to 9200 by April 2019?
Some experts in technical analysis have issued the chilling warning that there will be a “devastating sell off” and that the Nifty will plunge to 9200.
Novice traders and investors have been warned to stay away from Dalal Street to save themselves from being “butchered“.
Dow and Nifty cycles synchronize once again tomorrow after Jan 26 2018. Watch out! We are likely to see devastating sell off from tomorrow afternoon. Repeat of Jan 2018 and September 2018, and only more pronounced will be seen. Nifty target for April 5 2019 is 9200
— Anant Acharya (@TheAnantAcharya) February 21, 2019
When was the last time Nifty oscillated 14 times around the 200 DEMA in 4 months? Never! Not since 1996. What does it mean? A major change on a Large cycle. Beware! History says such action has always been disastrous!
— Anant Acharya (@TheAnantAcharya) March 6, 2019
Whatever the larger public view, there is a major action coming! Expect a large roller coaster ride before April 5, 2019. New traders and investors of last 5 to 8 years with little experience will be butchered. Watch out!
— Anant Acharya (@TheAnantAcharya) March 8, 2019
It is notable that an expert at equitymaster has also claimed that the Nifty is likely to plunge a mammoth 5% by the end of March or April 2019 (see EquityMaster Uses Trading System With “Nearly 100% Accuracy” To Warn That Nifty May Plunge 5% Soon)
Jo Dar Gaya Samjho Mar Gaya: Sunil Singhania
However, Sunil Singhania is not perturbed by all the talk of gloom and doom.
“Joh darr gaya woh samjho marr gaya,” he said in a dismissive tone.
Market wide fear getting to peak levels. Few things we should remember…..
Gabbar Singh: “Joh darr gaya woh samjho marr gaya”
Mountain Dew: “Darr ke aage jeet hai”
Warren Buffet: “Be greedy when everyone else is fearful”
— Sunil Singhania (@SunilBSinghania) October 23, 2018
The statement proved prophetic because it was made in October 2018 when the stock markets had slumped to the bottom-most level of 10,030.
There has been a spectacular recovery since then.
"any equity investor has to be optimistic. If one is not #optimistic, then one should not be an equity investor. Also, in a growing economy it makes sense to be #optimistic."
Sunil Singhania @SunilBSinghaniahttps://t.co/Mq5yaoj0Rl
— Victor Perton, Optimism for 2019 and beyond (@victorperton) January 8, 2019
Lux Industries, latest stock pick of Abakkus Growth Fund
Anyway, Lux Industries, a small-cap with a market capitalization of Rs. 3290 crore, is Sunil Singhania’s latest stock pick.
His Abakkus Growth Fund bought 300,000 shares on 6th March 2019 at Rs. 1,228 each.
The investment is worth Rs. 36.84 crore.
— MyValuePicks (@myvaluepicks) March 7, 2019
Strong revenue growth and good operational performance leads to strong bottomline growth
Revenue up 31% at 277cr
EBITDA up 16% at 43cr
OPM at 15.5% vs 13.4%
PAT up 60% at 21.3cr vs 13.3cr #2QWithCNBCTV18
— Sonal Bhutra (@sonalbhutra) November 4, 2018
— Krishna Karwa (@krishnakarwa152) May 22, 2018
Lux industries in business of underwear reported increase of 34% in revenue
No offensively looks like opposition is buying more underwears now
फट गई। ??
— #RenukaJain Chowkidar ?? (@RenukaJain6) May 18, 2018
|LUX INDUSTRIES LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||3,292|
|EPS – TTM||(Rs)||[*S]||38.10|
|LATEST DIVIDEND DATE||18 SEP 2018|
|BOOK VALUE / SHARE||(Rs)||[*S]||142.72|
[*C] Consolidated [*S] Standalone
|LUX INDUSTRIES LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||DEC 2018||DEC 2017||% CHG|
(Source: Business Standard)
Lux Industries can be the “next Page Industries“?
We are already familiar with the spectacular success of Page Industries, also a manufacturer of inner wear.
The stock is a magnificent 100-bagger since its IPO in 2007.
— CNBC-TV18 News (@CNBCTV18News) August 28, 2018
PAGE industries- stellar quarter, highest margins in the last 8 quarters
what a wealth creator this one!
listed at 329 rupees 11 years back
today at 24900, stock is a 75 bagger in 11 years!
— Sonia Shenoy (@_soniashenoy) May 25, 2018
According to the latest investors’ presentation, Lux Industries appears to be walking in the footsteps of the illustrious Page Industries.
It is pointed out that the inner wear market, which presently stands at Rs. 24,000 Crore, will grow to a mammoth Rs. 47,000 Crore by 2020.
Lux Cozi is said to be one of the strongest and fastest growing men’s inner wear brands (economy and mid segment).
The brand is promoted by big-shots like Amitabh Bachchan, Virat Kohli, Shah Rukh Khan, Sunny Deol etc.
No doubt, there will be no dearth of demand for the Company’s products given the star power backing it.
It is obvious that given Sunil Singhania’s track record at finding multibaggers, we cannot take his stock picks lightly.
So, we will have to keep Lux Industries in our radar and monitor it carefully.
We can pounce on the stock as soon as it starts exhibiting characteristics of being the “next Page Industries” and rake in multibagger gains for our own portfolios!