Indian markets in the middle of a bear rally: Gautam Trivedi, Co-Founder Nepean Capital


“We are in the middle of a bear market rally and we are not out of the woods,” says Gautam Trivedi, Co-Founder & Managing Partner, Nepean Capital.There is a possibility that the market could revisit the lows witnessed in the middle of 2022, he said.

What makes him think so

Though price action is indicating a rally since November, the MSCI All Country World Index, ex-Japan, has seen a historic 17 percent rally. It could be a cause of concern for India as money flows from higher valuations to attractive ones.It’s the second highest single-month rally in history shown by the index, he says.

“A lot of that was propelled by foreign-investor buying worth $ 8.5 billion in China. I find that as a bit of a concern for our market, given the fact that money invariably ends up flowing to valuations which are more attractive. I think that risk, from a foreign institutional buying perspective, clearly remains for the Indian market,” Trivedi said.

Though there has been net inflows of $ 22 billion into the Indian equity markets, the market cap of which stands at $ 3.3 trillion , Trivedi said inflows or outflows worth $ 5 billion could have a significant impact.

Recession in US, Europe another concern

Commenting on the frenzy of buying in the Indian market, and the growth in the number of investors, he said the number of investors in the Indian market has gone up three times in the last two and a half years, and given the proliferation of demat accounts, half of the investors now are new,” Trivedi said.Trivedi told CNBC TV18 that the Angel One numbers show a month-on-month (MoM) and a year-on-year (YoY) slowdown in volumes and a possible RBI hike could probably slow down domestic flows.

Commenting on what could possibly make 2023 a tough year, Trivedi said that the depth of the recession in the US and Europe could be one of the factors. Citing the MSCI ACWI, he said that the US accounts for 61 percent in terms of weightage. That will drag down the rest of the world, if a recession were to get deep.He said there is a likelihood of “the market trading sideways or maybe even going down by about 7-8% if the US recession were to get deep.

Valuations key for investorsWhen asked about the headroom in the auto sector from a valuation and growth perspective, Trivedi highlighted that heading into 2023, valuation protection is going to be the best friend for investors as he believes it is an uncertain year.”I would say that if you look at two wheelers, for example, Bajaj Auto and Hero are trading around 15 times FY24 PE, Maruti is at 24-25 times and Ashok Leyland is about 19 times. So, I think these valuation numbers aren’t really aggressive for the automobile sector but they might be a good place to stay invested,” Trivedi told CNBC TV-18.