With falling in Sensex since Budget Day, Is It right time to buy shares?


BSE Sensex have lost more than 10 per cent since the Budget Announcement of July 5, 2019. The imposition of tax surcharge on the super-rich, is likely to hurt Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors (FIIs).There are approximately 45 per cent FPIs and FIIs, who will have to convert themselves into corporates or end-up paying higher tax. This perhaps hurts them and consequently, over the last few weeks, they continuously sell stocks in NSE and BSE.This sustained selling by Foreign Portfolio Investors and Foreign Institutional Investors Pulled down BSE and NSE indices.
For the month of July, FPIs have net sold in the domestic market to the tune of $2 bn. Persistent selling by FPIs and FIIs, is likely to see more downward pressure in the stock exchanges. There is slowdown in Indian economy. Apart from super-rich tax surcharge, there are some other reasons for selling stocks by FPIs and FIIs.There is depreciation in rupee to the tune of Rs 69 a dollar, 0.25% rate cut by the Federal Reserve, poor corporate results in first quarter of 2019, rising crude oil prices, high fiscal deficit with more than 60% of budget estimate in first Quarter itself and rising NPAs.

Slowdown in the Indian economy is pretty much evident looking at data. Sales at India's largest car maker Maruti saw sales slump in the month of July to the tune of nearly 35%. Mahindra & Mahindra Ltd also saw auto sales declining 25 percent in first quarter of 2019. Bajaj Auto, Eicher Motors and Honda Cars also saw a sales fall. In fact, Honda saw auto sales declining 48 percent to 40,142 units on a yearly basis last month. Slowing auto sales will have a drag on auto loans, and banks which are retail oriented like State Bank of India Bank, may see a slowdown in numbers. The liquidity crunch facing the NBFC sector is also likely to further aggravate the problem of a slowdown in the economy.

Should one buy stocks in present scenario? If the markets were to fall another 8-10 per cent from here, it certainly look all the more attractive. At the current levels, market is not attractive. Wait for more fall. Further the Sensex companies P/E is still at about 20 times one year forward earnings, which is expensive. For investment in stocks, the P/E should be less than 17 times one year forward earnings. Wait for more correction before buying.

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