Investor sentiment towards the Indian stock market has been influenced by the sharp downward trend at this point. Fresh players have chosen to rework their IPO plans.
On 12th March, Thursday, Sensex saw a major crash and was down by 2,900 points or 8% in just one day. The western stock markets have experienced a similar fall in and around the phase.
Thursday’s stock market crash has been the sharpest one-day decline in the history of Indian stock markets. This is broadly a result of the declaration of COVID-19 outbreak as a global pandemic by the WHO.
Trading securities lays implications over creating them. After Thursday’s stock market crash, some companies have chosen not to go ahead with IPO filing.
Rossari Biotech and Burger King India were planning to launch their IPOs in the week that follows. This week, both companies filed their red herring prospectus (RHP). They have now deferred their plans.
Following the stock market crash on Thursday, their advisors had recommended that they should delay the launch towards sometime in April end, but only if the markets come across improvements.
One of the companies has expressed that they are expecting the stock market situation to improve. If it does improve, they will go ahead with the launches within a week.
It was in December that Rossari Biotech filed its draft prospectus with SEBI. Through the IPO, the company was planning to raise a sum of around INR 700 crores. Burger King India, on the same lines, was planning to raise a sum of around INR 1,000 crores. This was planned as a combination of both, fresh issue and offer for sale.
Another significant development in the Indian stock markets is that currently, Sensex and Nifty are down by 20% from their peak. A 20% fall is defined as a bear market. Such circumstances may be temporary, but they discourage investors who look for a better time to make investments.
Alternately, investors try and figure out the more resilient stocks, or the kind that will not be influenced much by the falling stock markets.
Most of the NIFTY stocks have fallen by more than 10% in the past month. A few of the ones that haven’t are Britannia Industries Ltd, Hindustan Unilever Ltd (HUL), Nestlé India Ltd, and Asian Paints Ltd.
For the present, the most expensive stocks in India, or the four consumer stocks as mentioned above also come across as the most resilient ones.
Consumers seldom consider the recent stock market developments as the sole criteria for investing in stocks. When the stocks have a good earning potential elsewhere, consumers see it in a positive light and may invest in the stock. The cash flow track record also plays a significant role in this regard.
A factor that is expected to augur well for the stocks is the sharp drop in crude oil prices over recent times. Derivatives of crude oil frequently make raw material and lay an influence over packaging costs as well.
Let us consider the case of Asian Paints. The operating profit margins are likely to see an expansion of 150-200 points. This means that earnings per share will increase by 6-8% and this will be a direct result of the drop in crude oil prices. As the benefits pass on to consumers, it will drive sales.
Similarly, FMCG companies such as Hindustan Unilever Limited (HUL) will come across benefits from the fall in crude oil prices. These companies may be better protected than others against the effects of the spread of coronavirus, but not in entirety.
While the stocks of well-known brands such as Nestle India and HUL have been resilient, a few are suffering as well.
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