On the collapse in the stock market and crypto
I think the biggest concern is what’s happening with all the other asset classes because people have allocated a lot of money, especially in cryptocurrencies, where a lot of hedge funds are likely to crash. Liquidity depletion could also have an impact on all other global markets. Inflation data from India is also expected today and will be closely watched domestically.
US Federal Reserve policy this week obviously becomes much more important in the context of persistently high inflationary pressures and what they do in reaction to that because the interest rate hike of 25 bps or so it doesn’t matter so much. It is the liquidity that must be withdrawn faster. I will be watching closely if they increase the pace of balance sheet reduction because that contributes a lot to all the inflationary impulses. Once the markets get more confident in the fact that central banks are now on track to rein in inflation, that is when the markets will calm down and that could take a few weeks.
When would you think the market may be bottoming out? Should one try and at least nibble on stocks that have been marking for market lows or stand back and let the poison run out of the system?
At least for a few days, people should give it up because you don’t have to shop every day. Since the 15800-15900 markets have continually gone and rallied, there is a lot of confidence among investors to buy at those levels. But when we correlate the Indian markets with what is happening globally, how we have fallen and have a valuation premium, we need to be cautious in the short term and let the market find its level.
Maybe the market will drop another 4-5%. If it goes down, we could start nibbling because we don’t know exactly where the bottom will be, what we need to start buying when we think the downside potential is less than the upside potential. That could be close to the 15,000 level of the Nifty.
What’s on your shopping list?
The sectors to avoid will be commodities because that is where the hit will come as inflation fears subside and people believe central bank action is having an impact. Commodity users are sectors that are exhausted for fear of high inflation. That’s where we have to buy. Select financials, especially the larger banks, is where we have to buy as well as cars, capital goods.
These will be the sectors to buy at that time. Right now, as the markets correct, we will see sectors like pharmaceuticals and possibly FMCG outperform because they tend to do so during the downturn. But my guess is that this phase of decline could be fast and create opportunities faster. In general, we should hold onto cash rather than buying defensive stocks and look to buy more cyclicals tied to the domestic economy as the correction unfolds.
Do you think the changing of the guard at RBL would make a big difference in the market?
It raises more concern because a PSU banker who has been a trustee at DHFL and appointed CEO of
. Putting someone like that in control raises red flags in the RBL balance sheet, disclosures, etc. So I wouldn’t want to comment fundamentally because the stock is down a lot at the moment, but for investors who just look at prices and think it might be an attractive buy, it shouldn’t be an attractive buy. People should just wait and see what happens in the next two quarters in terms of balance sheet disclosures. If they remain stable, then it could be an opportunity.
You talked about cars and capital goods. What are the plays you are looking to buy when the market falls further?
On the one hand we have highly valued multinational capital goods companies that are showing good traction in terms of order books and execution but their valuations are high but hopefully in the market correction there will be opportunities to get into actions like
, etc. On the other hand, the domestic companies that are doing very well because of various initiatives, whether it’s equity investment in steel, cement, or just a pick-up in equity investment, like and various smaller companies, all of them should be on the lookout for investors unless and until interest rates rise too quickly to affect the outlook for economic growth very significantly. The capex cycle this time seems to be quite strong for the next few years.
(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times)