Published on October 29, 2013
10 Factors that Influence the Demystifying Stocks Market during Diwali
Shubh Muhurat • It is time to gear up for Muhurat Trading. On Diwali, stock exchanges allow special trading for a brief amount of time, usually an hour, as homage to Lakshmi. The day also marks the start of a new Hindu financial year called Samvat, and is considered auspicious for trade. • However, utmost care should be taken while trading. Here are some factors to take into consideration.
Growth • If the economy slows, companies feel the pressure. This is, therefore, one of the biggest factors to keep in mind while trading. • During such times of slow growth, it is better to prefer stocks which see less impact or have a significant presence in foreign markets.
Rupee • Indian companies depend on imports for raw materials. These are purchased in a foreign currency. Hence, any fall in the Rupee’s value makes imports costly. This directly or indirectly affects profitability. • However, export-oriented companies like IT services actually benefit from a Rupee fall as they earn in foreign currencies.
Inflation • Prices of goods increase over a period of time. This is called inflation. With high inflation, companies incur more costs and are forced to hike prices. • This, however, affects demand. Inflation is, thus, a double-edged sword. It impacts companies and consumers alike.
Interest Rates • To curb inflation and Rupee’s fall, the RBI keeps interest rates high to curb the money supply in the system. • This means loans turn costly. But, it eventually affects demand and thus slows growth. • Investors thus prefer a low interest rate regime.
Monsoon • India has a vast rural population, which benefits from a good monsoon. This increases spending in rural areas, which translates to high demand. • Tractor and two-wheeler makers and consumer goods sector stocks often cheer a good monsoon.
International Prices • India being an import-dependent nation, international price of raw materials, especially oil, is important. • Fuel prices affect everyone. It is, thus, an important factor to keep in mind.
US Quantitative Easing • What happens in the US affects the whole world, including India. The US central bank – Federal Reserve – buys back bonds from the market to infuse money as part of Quantitative Easing. • This money flows into emerging markets like India as foreign investment. It buoys stock markets and helps companies get funds. • Any cut in the bond-buying will impact India. The Fed has not indicated when it will start the cut, but it is widely expected to happen early next year.
Company Financials • The company’s balance sheet will help you understand how profitable it is, and will be going forward. • Never bet on a stock without a thorough background check on the company.
Track Record • Compare the performance of a stock over a period of time, typically five years. It reflects the confidence of other investors in the company. • That said, track record should not be the sole judge. Just because a company jumped 10-fold in the last five years, does not mean it will do so in the next five years to come.
Peer Comparison • Also compare the performance of a company with its competitors in the sector. That will help understand the company’s prospects better.
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