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Why Did Tata Chemicals Fall?

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The result season is on and looks like the markets are on a correction mode. Is it a matter of concern? You will hear different answers from different people. Here is what we have to say and perhaps it is a right answer.  

Sure, the market’s corrected today. Both NIFTY and SENSEX were down ~2%. NIFTY Midcap 100 and NIFTY Small Cap 100 were also down ~2%. Several investors’ favorites like Tata Chemicals, Nalco etc. tumbled 10%-30% in October.

But why did that happen?

There are several factors bothering the stock markets and fundamentally sound companies. For instance, look at Tata Chemicals.

Tata Chemicals announced its quarterly results yesterday and the next day stock plunged ~10%.

The company posted 88% jump in its Q2FY22 consolidated net profit to Rs. 248crore, while the net profit stood at Rs. 132crore the same quarter last year. A rebound in soda ash volumes in the U.S. and India predominantly aided the jump in profit.

The expenses rose to Rs, 2,805.45 crore from Rs. 2,499.16 crore in the year ago period due to rising raw material and power cost, which is an industry wide pain point.

Thus, companies from the chemical industry are experiencing high-pressure at operating margin or EBITDA level.

Tata Chemicals MD, R Mukundan said, “With the re-opening of businesses in all markets, the overall demand environment continues to be positive. While this positive momentum is expected to continue, the supply-side environment especially on energy costs and supply chain poses a challenge.”

The problem will continue to bother the industry in the near term. However, we feel that the disruption that the company is facing currently is more temporary in nature and in the long term Tata Chemicals could be a beneficiary of the structural shift that is happening in China due to stringent environmental norms.

Why did Nalco fall?

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Second in the list is the National Aluminum Company Ltd. (Nalco). The internet is abuzz with queries like “why did Nalco fall, “the reason behind Nalco’s fall” etc.

Today the stock ended ~24% lower from the month’s high of Rs. 127.

Sharp increase in input costs (raw material) is one of the reasons for the fall in the Nalco’s stock price. 

The monsoon season has not been kind to coal miners impacting the production in several states of India especially in the Eastern region.

The steep increase in input costs is expected to dent margins in the near term. Though Nalco has captive mines and enough sourcing from Coal India, the increased demand and global demand supply gap for coal has impacted Nalco.

So, the management stated they would import some amounts of coal in order to continue their production. The import cost can increase the total cost of production in the near term.

Apart from input costs, the logistics/freight costs are also rising, which will impact the profitability of the likes of Nalco.

The question is how should you look at this correction?

Wise investors would look at this correction in fundamentally sound companies as an opportunity to buy as these stocks are cheaper now. Ordinary investors, on the other hand, would believe it is a bad time to invest. He/she would wait till the stocks return to their pre-correction levels.

A wise investor looks at a dip in price as an opportunity while an ordinary investor looks at a rise in price as an opportunity.

So, you must decide, which one do you want to be.

The country has undergone tremendous positive changes over the last few months. These developments and key policy reforms mean India is poised for growth.

Here are a few major developments-

Big Trillion Plan- Last month, the Government unveiled a four-year National Monetization Pipeline (NMP Vol 1 & 2) worth an estimated Rs. 6 lakh-crore. This plan aims to unlock value in the Infrastructure Line Ministries’ assets. The Creation through Monetization philosophy is directed at tapping private sector investment for new infrastructure.

Retails investors contribute to the rally– 15.2 Million Retail investors have added to the investor base since April 1. This implies retail investors are no more riding pillion but are major contributors to the recent rally.

The sixth largest stock market- India became the world’s sixth largest stock market, overtaking France for the first time in market capitalization.

FIIs Continue the Buying Spree- The fear of taper tantrum has reduced. Irrespective of negative comments from the bankers around the world, the Foreign Institutional Investors (FII) continue their buying spree. The NSDL data says, FIIs buying stood at Rs. 2.28 trillion in September.

PLI Scheme- The government approved Production-linked incentive (PLI) scheme for the textile sector worth Rs. 10,683crore. The automobiles and auto components industry is set to receive an outlay of Rs. 25,983crore under the PLI scheme.

NBFCs loosen their Purses- After a brief pause during the COVID-19 pandemic, the NBFCs and Banks have begun filling creditors’ pockets as the demand for loans picks up. Edelweiss and IIFL are now lending Rs.4, 000crores a month. The country’s largest mortgage lender HDFC Ltd. is witnessing a remarkable rise in home loan demand similar to pre-COVID levels. 

Bad Bank to tame the Worsts: After its announcement in the FY22 Budget, the Union Cabinet approved 30,600core government guarantee for the National Asset Reconstruction Company (NARCL), facilitating the formation of Bad Bank.

With all these and other developments happening in the periphery, you must look at the bigger picture instead of fearing short-term corrections in the stock market and waiting for the right time to invest.

Today, the Sensex is above 60,000. Sure, it’s a big number. But can you imagine how high the stock market will be, if all things fall in place as planned.

Nick Murray’s quote says it for us

“Timing the market is a fool’s game, whereas time in the markets is your greatest natural advantage.”

Need sound advice on where to invest, how much to invest, for how long to invest in the stock market? Subscribe to 5 in 5 Wealth Creation Strategy and get a portfolio of 20-25 fundamentally strong stocks tailored to your goals and risk taking ability.

*Disclaimer: Information mentioned in this email is for educational purposes only. Please do not consider it a recommendation to buy/sell/hold from Research & Ranking.

Read more:Timing The Market Is A Fool’s Game – Look At The Big Picture

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