As Diversity Shows the Spotlight on India Inc., Here's What Stock Investors Should Do

As Diversity Shows the Spotlight on India Inc., Here’s What Stock Investors Should Do – Mail Bonus

Strategic investments, especially mergers and acquisitions, have become a new fashion in India, with deep-pocketed companies investing huge sums to pursue inorganic growth. This frenzy is witnessing across sectors, with recent major investments, from paint and cement to media and entertainment, from transport to pharmaceuticals. The goal is to be at the forefront of taking advantage of emerging market opportunities. With a view to expanding rapidly, many companies are paying incredibly high premiums for acquisitions. In addition, most of these plans are solely financed by debt, which makes certain contract prices more questionable. In this context, history compels us to consider whether these plans as well as the premiums paid are justified?

While any investment plan that returns value to the company is an investment, unsuccessful investment costs lead to irreversible costs that are ultimately borne by the company’s shareholders. If a company breaks through by acknowledging the right opportunity, it can strengthen its prospects, lead to deeper marketing, help push up returns and become a shareholder. However, the course of events can become rather ugly if the investment does not yield the desired results. Indeed, such a plan, especially when it is in a sector where the company does not have the core competencies, can even be disrupted and may even paralyze it from making another investment that could reap more benefits. Another thing about such programs is that they tend to intensify competition and cause FOMO among existing players, which ultimately leads to more investment than required.

Along with questions about the poor allocation of capital, such plans need closer scrutiny, especially when companies resort to debt as a source of funds to keep contracts and promises. As can be seen from one of the leading leaders in the wind energy area, if problems become difficult, the company will eventually run into major problems, stuck under a mountain of debt and uncertainty, with the question of future sustainability. A similar consequence was witnessed when a journalist in the past invaded the infrared sector while it was hot and ended up defaulting on credit which led to a huge loss of wealth for investors.

So the key here is that investors need to be very careful when investing in such companies. In the long run, very few companies have been able to spread into unrelated industries with good results and return good returns for their shareholders. Therefore, investors should carefully evaluate such plans, check the debt position of such companies and especially in difficult times like these, stick to investing in efficient companies that can deliver higher returns in a sustainable way.

Technical outlook
Following weak international evidence, the Nifty50 closed this week on a significant negative note. The index has decisively broken down to a significant support of 15,700 and this indicates a further result from here. Although market sentiment is very positive, the indices have become obsolete in the short term. Even the major international indices are trading with falling channel support. Therefore, a short jump can not be ruled out. We recommend that traders maintain a mild negative to neutral outlook and use any kind of jump as an exit opportunity. Immediate support and resistance are now set at 15,200 and 16,200 respectively.


Expectations of the week
Indian indices are expected to be dizzying and moving in line with weaknesses in international peers as investors remain concerned about sky-high inflation. In light of the lack of major domestic events and the continuing dominance of international national interests, market participants will closely monitor the movement of the dollar index, crude oil prices and the development of the Covid situation in China as well as India. With the S&P 500 as well as our public banking index in the bear market area, fears will continue to grow. Investors are therefore advised to exercise caution and start small specific investments in basically better companies that are available at reasonable prices. Nifty 50 closed the week at 15,293.50, down 5.61%.

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