Sensex Remains Flat; Energy Stocks Witness Buying Interest

Thu, 29 Dec 11:30 am

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After opening the day on a flat note, the Indian share markets registered marginal gains and continued to trade near the dotted line. Sectoral indices are trading on a positive note with stocks in the consumer durables sector and energy sector witnessing maximum buying interest.

The BSE Sensex is trading up 33 points (up 0.1%) and the NSE Nifty is trading up 15 points (up 0.2%). The BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up by 0.7%. The rupee is trading at 68.13 to the US$.

The Cabinet has approved the promulgation of an ordinance extinguishing the Reserve Bank of India's (RBI) liability for cancelled Rs 500 and Rs 1,000 notes as the logical conclusion to the government's demonetisation drive. By this ordinance, it is illegal to hold old notes post March 31st.

As per a leading financial daily, the ordinance is expected to provide a limited window for depositing the cancelled notes at select RBI branches until March 31. It is also expected to prescribe a monetary penalty for anyone holding such currency in large quantities after the deadline of March 31. A fresh set of guidelines will be issued on December 30 detailing procedure for exchange of currency at RBI counters until March 31.

As per the officials, the above move will give the finance ministry enough time to factor into the budget the amount of old currency that hasn't returned to the system.

Apart from the above developments, market participants are keeping tabs on the demonetisation deadline. Prime Minister Narendra Modi's 50-day demonetisation drive ends on December 30 and market participants are expecting tax sops from the government to boost the economy.

In our view, the cash crunch led by demonetisation will mean a forced slowdown for at least the next 1-2 quarters. The much awaited recovery in the economy will see a delay for some time.

However, according to us this is a very narrow outlook. We are not into predicting when the demonetisation pains will ease. We are more interested in how the long term trend will pan out. This is because the power of compounding always unleashes in the long term, maximizing the return potential to the full. As our recent edition of The 5 Minutes WrapUp points out:

• A look at the 5 year rolling market returns offered by Indian markets clearly shows how remaining invested over the long term reaps the maximum benefit. In the past five years, an equity investor saw his 5 year rolling returns increase from 3% to a peak of 20% before tapering off to 10%.

Rolling Returns of Sensex

In fact the Co-Head of Research, Rahul Shah, has written about the very real possibility of a 70% upside in the Sensex. This is what he had to say:

• The aggregate data we have pulled for Nifty companies suggests that profit margins were at a ten-year low at the end of FY15. Even if they were to rise to the average of the last ten years, not immediately, but three years out, the upside would be close to 70%.
  
  Put differently, markets will go up 70% over the next three years if profit margins revert to the mean.

Therefore, the present gloom may just be the right opportunity to ride the wave and earn higher returns over the long term.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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