|»5 Minute Wrap Up by Equitymaster|
On This Day - 29 AUGUST 2011
These companies will most likely lead market revival
In this issue:
-------------------------------- Could the BSE Sensex Crash Another 50% from here? --------------------------------
This is dead serious...
The stock markets are in a tizzy... and we all have our worst case scenarios.
But if this event were to turn out, all of us would have been horribly wrong.
Yes, dear reader, we are talking of a chance that the Sensex could crash another 50% from here.
Is this really possible? What could trigger such an event? View this video right now for the answer...
So which companies are these? Typically these companies would have 3 main qualities. These are strong balance sheets, low valuations and resilient business models.
Strong balance sheets would mean little or no debt. With zero or negligible debt, such companies would not get burdened by higher interest at times the rates are headed upwards. Moreover, these companies also benefit as they can easily take on some debt to fund expansion plans when internal accruals slow down. A cash reserve can help companies meet the regular operating expenses without having to worry about the impact of slowdown.
But again, the slowdown in internal accruals should be very short lived. It should not a long term case. So here comes the need for having a resilient business model. These are the companies which typically have some form of pricing power either through their innovative business practices or innovative goods/services. Such companies are able to survive a downturn when it occurs.
And finally, once one identifies such a company, it is important to look at the valuations. Paying a lower price can help maximize long term gains. So combine the three together and Voila! You have a fundamentally sound investment at cheap valuations. And if it is a blue-chip then the chances are that this company would lead the market revival.
Do you think companies with low debt and resilient business models can lead market revival? Share your comments with us or post your views on our Facebook page.
*Makers of Blackberry
Irrespective, no QE-III is actually good for emerging markets, especially India. India is a big importer of oil, and the country will benefit if commodity prices see a sell-off. Inflation may thus move to more manageable levels. And the Reserve Bank of 0f India (RBI) may not need to undertake further rate hikes. Plus, even the budget deficit may look in better shape, if oil prices fall further. Thus, no more quantitative easing is definitely good news for India Inc.
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