PM Modi's Appeal to the Nation: How it Impacts Your Stock Portfolio

The 7 Points

In a nutshell, these are the 7 points the Prime Minister made in his appeal to the nation.

• Prioritise work from home
• Avoid buying gold for one year
• Reduce personal petrol and diesel consumption. Use public transport
• Reduce the use of cooking oil as much as possible
• To farmers: Reduce the use of various chemical fertilizers including urea and increase the use of natural farming methods
• Reduce/ stop buying foreign made goods/ buy Swadeshi
• To travellers: Avoid foreign travel for a year

The Stock Market's Reaction

It's safe to say the stock market's reaction has not been positive.

What has made the impact worse is the timing. The speech coincided with US President Donald Trump rejecting Iran's ceasefire offer, calling it 'a piece of garbage'.

Trump went on to say that the ceasefire in the ongoing war, was on 'massive life-support'.

This has resulted in genuine fears of a resumption in major hostilities which would be a huge blow to market sentiment globally. The stock market assumed that a deal between the US and Iran in some form would happen eventually. This is now in doubt.

In this context, the PM asking citizens to potentially endure austerity has not gone down well with many retail investors who were patiently hoping for the market to rise in response to a ceasefire.

Stocks to Watch

• Work from home

  During covid one of the biggest beneficiaries were companies like Eternal (Zomato), Swiggy, etc due to the surge in deliveries.

  Could we see something similar?

  Well, the situation is not the same this time. There is no lockdown...at least not yet.

  So, trying to speculate on such stocks would be a bad idea.

  Investors should consider these companies' long-term fundamentals and valuations instead of thinking about short-term profits.

• Gold (Jewellery)

  Jewellery stocks tumbled in response to the PM's appeal and the reason is simple.

  If people were to actually reduce or delay consumption of gold jewellery for a year or so, these companies will suffer a double blow.

  The first is the obvious loss of revenue which will directly affect profitability.

  The second is the potential for inventory losses. These companies would have purchased gold in a rising price environment over the last few years and might have to offer discounts to attract buyers.

  If your portfolio has jewellery stocks, it would be a bad idea to be bullish on them in the short term.

• Fuel

  The appeal to reduce consumption of petrol and diesel is not necessarily bad news for oil marketing companies because they will struggle to maintain supplies anyway if the war drags on.

  The real impact will be felt by auto companies as consumers could delay purchases until the Middle East situation stabilises.

  This in turn will adversely affect the entire auto ancillary value chain.

  The BSE Auto index was down 2.3% today.

  If you have auto/ auto ancillary stocks in your portfolio, pay close attention to them.

• Cooking Oil

  This is difficult to speculate on because cooking either at home or at restaurants will need to be done no matter how much austerity is adopted.

  Switching to non-oil based cooking depends on personal choices and it's unclear what would happen in a worst-case scenario.

  That said, investors who have stocks like Adani Wilmar, Ruchi Soya, Marico, etc, in their portfolios should closely track the evolving situation and pay attention to what the managements of these companies are saying.

• Fertiliser and Pesticides

  A switch from chemical to natural farming cannot be done overnight.

  It's hard to predict by how much fertiliser/pesticide demand could reduce in the short term but there could be a small impact.

  However, it seems the stock market has already passed its judgement on these stocks.

  These stocks are down but that's not just due to the PM's appeal. The market is worried about gas supplies from the Middle East which is necessary to keep fertilizer/pesticide plants running.

  If you have these stocks in your portfolio, then taking a hard look at the reasons you bought them in the first place may be necessary.

  But any decision should be based on long-term fundamentals, the valuations of these stocks, and the holding period you are comfortable with.

• Imported Goods

  Here it makes complete sense to be cautious.

  This is not because people will necessarily reduce their consumption of imported goods, especially luxury goods.

  The reason is the government could impose import restrictions on imported goods in times of economic distress. This has happened before and could happen again.

  There are very few listed companies in the luxury goods space and not all of them are heavily dependent on imports...but many are.

  You can find a list of luxury goods stocks here.

  Evaluate them on a case by case basis.

• Foreign Travel

  Again, this is difficult to predict. People with confirmed bookings might not cancel their travel plans.

  However, delays, postponements, and indecision are now very likely.

  If there is a possibility of international travel restrictions, many people won't make foreign travel plans in the first place.

  This is negative for airlines already reeling due to the ongoing war and rising crude oil prices.

  Hotels could also be negatively affected to an extent.

Conclusion

The father of value investing, Benjamin Graham, said that in the short term, the stock market is a voting machine but in the long run, it's a weighing machine.

This means, the market will punish any stock that could be affected negatively by PM Modi's speech.

The actual negative impact will only be known much later, perhaps a year later. Traders and short-term investors have decided to sell now and ask questions later.

This could result in buying opportunities in fundamentally strong stocks.

You don't get good news and cheap prices at the same time in the stock market. Value opportunities appear only when the news is bad.

And the news is bad at the moment. Until a lasting ceasefire takes hold in the Middle East, the news will likely remain bad.

If you are a value investor, this is a good time to look for long-term stocks.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...