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10 factors that can affect your stock returns


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It hurts...
Midcap turmoil, a falling rupee, surging crude prices and panic-stricken NBFCs... the
market has seen them all.

Fear is in the air. Friday was particularly terrible when stocks collapsed nearly 3 per cent
within a matter of minutes on liquidity fears. The flash crash wiped off a big chunk of
investor wealth in one stroke.

Is your portfolio safe in these highly volatile times? Going ahead, what factors will decide
your stock returns?

We have shortlisted a few variables -- 10, to be precise -- that can make or mar your stock
fortunes over the next one year. Off they go.

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Sep 25, 2018, 04.09 PM IST

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2/11

Rupee
With a fall of 13 per cent so far this year, rupee has been the worst performing currency in
Asia. A lower value of the rupee means a boost for exports as exporters earn in dollars.
But overall, a depreciating domestic currency bumps up prices. And suddenly,
macrofundamentals look vulnerable. This has a huge sentimental impact on the market in
general and your stock portfolio in particular.

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3/11

Oil

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Of late, oil has been giving much pain to India, which is largely dependent on imports.
Higher global oil prices, which recently crossed $80, remain one of the biggest sticking
points. Oil marketing companies will be in focus. With US sanctions against Iran looming
and Opec virtually refusing to toe the US line to boost supply, the price pressure is only
building. There is even a talk of oil hitting $100 soon.

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4/11

Elections
The mother of all electoral showdowns is round the corner in 2019. This is believed to be
the biggest overhang for Dalal Street that's keeping the suspense factor alive. Plus, a few
states are going to polls just before the Lok Sabha elections. Who will have the last laugh,
nobody knows. One thing is for sure. Whichever way they go, that will affect the way your
stock behaves.

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Sep 23, 2018, 04.09 PM IST

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5/11

Inflation and interest rate


This in a way decides the purchasing power of the consumer. Both retail and wholesale
inflation have eased on the back of cooling food prices. Going ahead, much of the stock
behaviour is linked to this crucial parameter. In hindsight, the RBI has hit the spot by
keeping a tight grip on inflation. The Reserve Bank on its part has raised the benchmark
repo rate twice since June to 6.5 per cent. Its monetary policy path holds big clues as to
which way the market will move.

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6/11

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Trade war

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An escalating trade war between the US and China means commodity stocks in general
may suffer as both sides impose retaliatory tariffs. But India stands a chance to fill the
trade void as it looks to ramp up supply to the world. That offers a huge sunshine for
select stocks with an export focus.

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7/11

Macros
The rupee slide may bring back memories of 2013's taper tantrum. But macros
fundamentals as a whole are looking a lot better. Though India retains the tag of fastest
growing major economy in the world, the current account deficit is swelling. There may be
worries over the fiscal deficit, but the government has tried to allay investor fears, saying it
will stick to the 3.3 per cent road map for 2018-19.

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8/11

Earnings revival
As the economy gathers momentum, companies are getting their purchasing power back.
Easing commodity prices owing to the global trade fight are coming as a boon for their
profitability. If all goes according to plan, analysts see an earnings revival that could set
the course for rest of the year. But cost of borrowing remains a big factor to watch out for,
with yields hovering above 8 per cent.

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9/11

US growth

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If the US sneezes, the world catches cold, they say. The US Federal Reserve has just
raised its policy rate by 25 bps, which boosts the dollar. A higher Treasury yield, in turn,
pulls away capital from risky assets of emerging markets. The central bank has also
indicated that there is more to come as it gets more confident about the strength of the US
economy.

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10/11

Global cues
Any hard landing on Brexit (Britain's exit from the EU) poses a serious global risk. Britsh
Prime Minister Theresa May is all out to get a deal on her own terms, but it's easier said
than done. Risk aversion can be an immediate fallout of any instability in emerging
markets. The recent developments in Turkey, Argentina and Indonesia prove that.
Additionally, geopolitical issues related to US' sanctions against Iran and the Korean
peninsula may have worldwide repercussions on shares.

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FII flow
This is an indicator of how much capital foreign investors bring into the country. Any
slightest negative cue has the potential to spark big outflows. That's a factor to keenly
track. The recent market crash is also a crude reminder of the lethal firepower bonds
have. The source of the volatility centred on market liquidity, something investors can ill
afford to ignore.

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House of cards?
Everybody is talking about Non-Banking Financial Companies (NBFCs). They have taken
a lot of spotlight, but all for the wrong reasons.

It's a house of cards that has come crashing down. Which chiefly was the reason behind
the panic attack on Friday when the stock market plunged nearly 3 per cent in a matter of
30 minutes.

All this while, you wanted to know what the issue is all about and why there is so much
buzz. We make your job simple with this easy to follow presentation.

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2/9

The backlash
There is nervousness about the very ability of NBFCs to raise funds. Fears are growing
that NBFCs, which are dependent on wholesale funding, will struggle to access capital
due to higher cost of funds, going ahead. Borrowing costs have gone up with a rising yield
and a widening current account deficit.

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3/9

In the eye of storm


The trouble started when infra developer and lender Infrastructure Leasing & Financial
Services (IL&FS) defaulted on a series of interest repayments this month and failed to
service its debt obligations. On top of that, on Friday, a large fund manager sold short-
term bonds from Dewan Housing Finance at a sharp discount. That was enough to
unsettle investors who felt that the problem runs much deeper and points to a wider
systemic liquidity issue in the sector.

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4/9

Rupee decline partly to blame


The RBI’s attempts to check decline in the rupee have driven out much of the liquidity in
the market as the bank is sucking up rupees and selling dollars. This has jacked up
borrowing rates for big borrowers such as the non-banking financial companies.

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5/9

What are regultors up to?


The watchdogs are on the job. Both Reserve Bank of India and market regulator Sebi
have made the right noises, saying they are keeping a close watch and are ready to act, if

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need be.

BCCL

6/9

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Govt on the frontfoot


The government is not taking chances. Finance Minister Arun Jaitley has taken to Twitter,
saying “the government will take all measures to ensure that adequate liquidity is
maintained/provided to the NBFCs”.

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7/9

It's a 'contagion'
“The recent tightness of liquidity in the corporate bond markets indicate a contagion effect
may be playing out following the default by IL&FS,” said brokerage firm CLSA in a
research note on Monday.

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8/9

A big blow
The credit turmoil among NBFCs has hammered India’s stock markets, which have hit
record highs in 2018 despite sell-offs in domestic bonds and weakness in the rupee, which

13 of 21 28/09/2018, 12:55
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has been the worst-performing Asian currency this year.

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9/9

Will sanity prevail?


Some say the market overreacted on Friday with a nearly 1,500-point swing. India’s
largest bank SBI too tried to soothe jittery investors. It termed fears that banks were wary
of lending to NBFCs as "baseless".

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5 stocks to bet on this week


Equity benchmarks suffered major losses last week even as global markets rose,
shrugging off worries over further escalation in the US-China trade war.

More volatility is expected on Dalal Street in the coming week, as September series
futures and options contracts expire on Thursday. However, there are stock-specific
opportunities across sectors.
Here are the top stocks to bet on this week.
Text By: Milan Vaishnav, CMT, MSTA

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BCCL

2/6

MRF| Buy| Target price: Rs 68,430


After marking the level of 74,147 in June 2017, the stock marked further marginal highs
but never broke out from a formation. After the recent high of 81,190, the stock saw some
sharp corrective move over past couple of weeks.

The stock is seen taking support near its major pattern support. A candle with a long lower
shadow has emerged and it can potentially mark a near-term bottom as it has occurred
near its 100-Week MA. A bullish divergence is observed on Weekly RSI as RSI has not
marked a fresh 14-period low while the NIFTY did. A fresh buy signal over Stochastic has
occurred on the Weekly Charts.

Though the stock may remain within a defined range, a technical pullback cannot be ruled
out. Any move below 62,500 will be negative for the stock. Buy MRF above 66,740 with a
short-term holding target of Rs 68,430.

All images: Milan Vaishnav, CMT, MSTA

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BCCL

3/6

Concor| Buy| Target price: Rs 710


After marking a near double top near 740-mark, the stock saw some minor corrective
decline and thereafter has remained in a defined trading range. It is presently seen in a
symmetrical triangle formation. Couple of signals have emerged which point towards a
likely breakout and possibilities of the price, testing its previous highs.

Weekly MACD is sharply moving towards a positive crossover. A long lower shadow
emerged on Candles. This candle remains significant as it has occurred near the strong
support area of 100-Week MA. This MA has acted as support for couple of times in the
past and remains a major support area. Weekly Stochastic remains in continuing buy
mode. Some upward revision in price cannot be ruled out. A move below 610 will be
negative for the stock. Buy Container Corporation of India (Concor) above 642 with a short
term target of Rs 710.

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BCCL

4/6

DLF| Buy| Target price: Rs 225


After marking highs near 275-mark, the stock has remained under corrective decline and
has formed a small falling channel. It has attempted to take support in the 180-195 zones
and has attempted to find a base in this range. The stock broke out of this channel, but is
seen suffering a classic throwback with the price returning back to the place from which it
broke out of the Channel.

The Weekly MACD remains in continuing buy mode. A candle with a long lower shadow
emerged and it remains significant as it took support at the 100-Week MA. It lays base for
some resumption of uptrend. A resumption in the upward move on the stock cannot be
ruled out. It is seen improving its momentum when benchmarked against NIFTY JR and
Realty pack. Any move below 184 will be negative for the stock. Buy DLF above 199 with
a short term holding target of Rs 225.

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BCCL

5/6

Asian Paints| Buy| Target price: Rs 1,425


The stock broke out from a multi-month bullish ascending triangle pattern but after
marking highs around 1,490. It suffered a throwback on the higher time frame charts.
Presently, it returned precisely at the price levels from where it broke out. Couple of
signals have emerged which point towards resumption of an up move in the stock.

Weekly RSI indicates some consolidation with the immediate low acting as strong support.
A hammer occurred on Candles. Emergence of a candle with a long lower shadow near
the support area also marks a potential reversal and subsequent up move in price. A buy
signal over Stochastic has occurred over the weekly charts. The immediate slow also
coincides with multiple strong pattern area supports. Some up move in prices can be
expected over coming days. Any move below 1,250 will be negative for the stock. Buy
Asian Paints above 1,304 with a short term target of Rs 1,425.

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BCCL

6/6

Larsen & Toubro| Buy| target price: Rs 1,460


The stock has been under rectangle pattern formation and has been in a range bound
consolidation for almost eight months. It is seen taking support in the close proximity of all
of its major averages on Daily Charts which converge in the 1,302-1,320 area. On the
weekly chart as well, it is seen taking support near its 50-Week MA.

Weekly MACD stays in continuing buy mode while RSI stands neutral showing no
divergence against the price. It is important to note that this stock enjoys single largest
weight in the Infra Index and presently remains in Improving Quadrant while improving on
its momentum. Infra Index also is seen showing considerable improvement in its relative
momentum when benchmarked against CNX500 Index. Buy LT above 1,328 with a short
term target of 1,460.

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