The equity market corrected more than 8 percent last week from its record highs and after a sustained bull run. Indian investors lost Rs 7 lakh crore of their wealth in a single day on November 25. The market declined nearly 3 percent with the BSE Sensex down by 1,687.9 points and the Nifty shedding 509.8 points.
But, there’s no cause for worry, believes Harendra Kumar, Managing Director at Elara Securities India, as the markets are looking towards sustainability of earnings and accommodative rates. “If these are managed, the markets are sure to sustain its buoyancy,” he says in an interaction with Moneycontrol.
Retracement in a rising market, as he says, is a good sign since it strengthens the dynamics. “The bull market is intact and counter bear-market trend is not a possibility at this juncture,” says the ace financial services professional, reputed for having built several highly successful and profitable sell-side businesses.
Excerpts from the interaction:
Do you see more correction on the cards?
Retracement is good as it gives more strength to the future legs of the market. But the key question is whether the market is challenging the up-move and is there going to be a trend reversal. In our view, the bull market is intact and the counter bear-market trend is not a possibility at this juncture. It is true that markets are assigning peak range values to long-term earnings growth potential of Indian equities, and some negative surprises on that front may trigger some corrections. If at all, there is some froth in the mid-cap and small-cap companies but not the whole market.
We’re close to the next monetary policy of the Reserve Bank. What are your broad expectations? Do you see any hint of change in the accommodative policy stance?
There is a global coordination to manage the supply-shock-led inflation. The verdict on the long-term trend of inflation is still not out and, in our view, the governments worldwide will look at normalisation of supply chains and the labour market before taking a call. Markets are not signalling any adverse action on that front.
What could be reasons behind the significant FII selling spree in the equity market? What do you read from the gradual rise in the Dollar index?
Rising US Dollar Index (DXY) and money flow into low-risk assets have accelerated. This is on the expected lines but not trend-changing. Flows into the primary markets have been strong and sticky, which is contrary to the secondary markets. Some money is going back to China in the emerging markets (EM) basket. This re-calibration is on the expected lines but nothing that damages India’s attractiveness in the overall scheme of things.
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Do you think investors should be more cautious on the equity market and shift focus to other asset classes?
The 1-year G-Sec and 12-month forward Nifty yield gap still remain negative, indicating that returns from equities despite high valuations are still more attractive than bonds. While we are talking of liquidity normalisation, it’s expected to be gradual with probably not a very steep rate hike cycle. With this in light, equities are expected to provide better returns in the near to medium term, especially when accumulated on correction.
What are the key themes that you are betting on for 2022?
Next year will be the real test of durable economic recovery. So key themes to our mind will be:
(a) After couple of years of weakness, domestic consumption is reviving driven by normalisation and opening up of the economy. So, consumer discretionary is an area of focus.
(b) Steady recovery trend makes services and hospitality interesting.
(c) Gradual road to normalcy in liquidity will impact sectors like real estate and financial services.
What is the top wall of worries that the market is going to face in coming months?
More than worries, we should look at the possible risks. These could be:
(a) Another supply shock, pushing inflation higher and squeezing margins further.
(b) A third COVID wave in India.
(c) Fed and RBI raising rates faster than anticipated, squeezing liquidity more quickly than earlier thought.
Do you think the Indian markets are least bothered about the tapering off and rate hike in the US?
Indian markets are looking towards sustainability of earnings and accommodative rates. If these are managed, the markets are sure to sustain the buoyancy.
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