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Current correction in the financials is opportunity for long-term

Monday, October 22, 2018

Rahul Agarwal, Director Wealth Discovery/EZ Wealth

Indian equity markets have come under a lot of pressure off late, the twin assault of higher crude prices and depreciating Rupee has led to severe correction in the major indices. From the start of the month of September till 19th October, NIFTY 50 has lost 11.04%, whereas the leading financial index NIFTY FINANCIAL SERVICE Index is down by 11.58%. Leading Banking benchmark Banknifty as well as Nifty Financial services returns have turned negative for the year. The companies in the financial space have been hit especially hard by the IL&FS fiasco, which has made investors jittery about the liquidity situation in the Indian debt market. The first calamity of this perceived liquidity crunch have been big housing finance names, which have traditionally used short-term debt such as commercial papers to fund their loan portfolios. Leading names such as India Bull Housing Finance, Dewan Housing have corrected more then 50% from their 52 week highs and are currently trading at their multi-year lows.


The market crash especially the meltdown in the financial space has led to significant wealth erosion at the retail level and it has become increasingly difficult for an average investor to stay invested or to initiate fresh positions given the current volatility. So is it the right time to get into the financial space? Has the recent correction made this space attractive? The simple answer to this question is, it depends and varies from case to case. If one has a long-term perspective and can wait for a couple of years then the answer is a definite yes in select names. An ideal approach would be to initiate long positions in fundamentally strong names in a staggered way and accumulate good quality stocks at each dip.

It has to be remembered that the Indian economy continues to be fastest economy in the world, and it is expected to continue this way for a long time, the macro-economic factors continue to be strong. We believe that the issues that the Indian economy is currently dealing with are short-term blips and would even out in due time.

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