Is There More Downside in IT Stocks? ???

Nifty:?15,699 (+6%)

NIFTY 10 yr Benchmark G-Sec Index:?1,984 (+1%)

What’s Up Market?

Commodity Prices Cooling off - Respite? ??

June has been marred by a severe fall in the markets. High inflation, its causes and consequences have been playing hard on the markets.

However, the last fortnight has seen some interesting developments. With a sharp increase in interest rates, the fear of the global economy slowing down has been steep.

Consequently, commodity prices have started cooling off. Prices of key commodities like nickel, aluminium, zinc, natural gas and crude oil are significantly off their 2022 highs. Similar has been the behaviour of agri-commodities. A correction is seen in the prices of wheat, corn and sugar.

Signs of respite? Not really!

1. Commodity prices are cooling off in expectation of lower economic growth, and lower demand. And that’s legit. The US is a major consumer of everything there is, and that slow down is bound to impact prices.
2. China is coming back after its massive no-tolerance-towards-COVID-policy-led lockdowns. It has been taking measures to boost output, and that’s likely to offset some of that cooling off above.
3. The on-ground situation from a supply standpoint hasn't changed. Russia and Ukraine are still battling it out, trade routes in the sea are blocked for Ukraine, the West continues to impose sanctions on Russia, and the supply of key commodities from the two countries remains severely impacted.
4. The price declines seen need to sustain for inflation to decline. Till then, there is room for more hikes by the RBI.
5. Corporate earnings are likely to get impacted negatively in the near-term because of all these factors; that too in an overvalued market.

These factors are likely to keep pressure on the markets on, in the near-term.

???To know more:?https://www.rupeeting.com/post/commodity-prices-cooling-off-respite

Market Stories

Is There More Downside in IT Stocks? ???

IT has been one of the worst-performing sectors in 2022, so far. Amongst the Nifty 100 stocks, four of the IT stocks have lost between 40-50%, and three have shedded away 20-30%. This is far more than the market correction, and one may be tempted to hunt for value here.

But is the downside really over? We think not! Here's why:

1. The IT sectors gets more than half its revenue from the US. And the US is in bad shape right now with inflation soaring high, and the Fed hitting the peddle hard on interest rate hikes. The economic cool down is expected to be harsh, and that will affect the IT budgets of most customers of IT companies.
2. While the US economy is slowing down, there are also fears of a recession in 2023. Whenever sentiment amongst buyers goes low, we’ve seen issues like delayed decision making, longer deal closure cycles, pressure on pricing and renegotiation of contracts, which not only add pressure on revenues, but also on margins.
3. Post the initial negative impact of COVID, IT companies had seen a sharp increase in growth, setting a high base to match up during these tough times. Earning downgrade cycles will add to the pressure on stocks.
4. Valuation for IT companies is still high. It has come off its peak, but definitely higher for the kind of earnings growth, and risks associated with the sector. The sector is still trading at a 35% premium to the Nifty 50. Just to put that in perspective, the average premium over the last 20 years has been 22%. And during relatively bad times (2008-10 and 2016-20).

With this, it’s a tall ask for the sector to perform well in the near-term. The possible triggers are a better outlook in the US, or valuations becoming further reasonable - both of which seem only likely after some more downside.

???Read more:?https://www.rupeeting.com/post/is-there-more-downside-in-it-stocks

Personal Finance

Why It Makes Sense to Get an Advisor ?

Investing in stocks directly can be exciting. It may even have worked well if you started investing in 2020, post the pandemic-fall.

Whatever you picked went up in value, and making money seemed rather easy. And then came October 2022, the time from which it has become difficult beating the Nifty 50, let alone making money. The last six months have made a case of why you could be better of with an advisor rather than investing by yourself. They’d just do a better job at asset allocation, and stock selection.

There are more reasons though for why you should be getting an advisor:

1. Returns - Investing in stocks and managing portfolios requires knowledge and expertise. There’s a larger probability that an advisor would make money in stocks than an individual with no experience would.
2. Time - Investing is a full-time job. Analysts keep track of every single move in a company, and usually can’t keep up if the number of stocks increases to more than 20, despite being in the business. How do you expect to work full-time, and then match that level of resource allocation towards research and investing?!

There are two interesting mathematical viewpoints for why and how advisors make sense.

1. The ask rate

If an advisor were able to beat the market, they would have to beat it by the amount of fees you pay them, for your money to be worth it. In short, if your advisor charges 2% per annum, he would have to generate market returns + 2% at the very least for the fees to be justified. If they’re generating lower, you’re just better off buying a Nifty 50 ETF and sitting on it. If they’re generating higher, you’re making more money than you would have by yourself.

2. Value of your time

Say you earn Rs. 12 lakh per annum. At 8 hours per day, and 250 working days, you earn Rs. 600 per hour. Managing your own money only makes sense if: Your portfolio size is Rs. 6 crore, and you are spending 8 hours a day managing that; rather than giving 2% to an advisor to do it.

???Read more:?https://www.rupeeting.com/post/why-it-makes-sense-to-get-an-advisor

Chart of the week

Who Said FII Selling Doesn’t Have Any Impact on Stocks?

This year, foreign outflows from the Indian markets have been the maximum ever, bringing foreign ownership in the Indian markets down to 18%, which is more than a five-year low.

The offsetting factor has been strong domestic inflows, which has helped the markets lose lesser value compared to other markets, and at a slower pace. But to say that domestic buying completely offsets foreign selling is quite a myth.

In 2022 so far, FPIs have pulled out Rs. 1.98 lakh crore from the Indian markets. The maximum selling was seen in Metals - FPIs reduced their holding by as much as 27% in just the last two months. On the other hand, foreign shareholding increase in the Auto sector by 3% - the only sector to see an increase.

The performance of sectors has been in perfect tandem with the percentage reduction in foreign shareholding. In other words, more the foreign selling pressure in a sector, more has been the downfall in stock prices - a phenomena the Indian markets have seen historically, and which continues even now!

???Read more:?https://www.rupeeting.com/post/who-said-fii-selling-doesn-t-have-any-impact-on-stocks

@Rupeeting

A Deep-dive into the Monopolies Portfolio ??

We had a chat with our friends at Trinkerr a few days ago, where we deep-dived into the Monopolies portfolio. Broad agenda:

1. What's the Monopolies theme about? What’s the investment thesis, and what can the successful performance of the portfolio be attributed to?
2. What are the portfolio constituents? Why are they in the portfolio? What is the rationale behind each of the stocks?
3. What are Rupeeting’s views on the market? How do we churn, rotate and change the portfolio to suit market conditions?

???Watch now:?https://www.youtube.com/watch?v=MFS_haMQLy4&t=47s

At?Rupeeting, we are on a mission to make wealth for everyone. We do this by giving you good investment products, and by making you aware of what your money is up to. Invest with us and become the most knowledgeable investors around. Spread the word, let's all become wealthy!