Kunjal Bansal on what to buy if market falls
Automobiles and pharma sectors which had taken the lead in the market rally will also take lead in a fall and we could fall more than the fall in the global markets, says Partner & CIO, Sarthi Group.It seemed until yesterday that our market will be resilient despite the weak handover from the global markets in the previous two trading sessions. But it seems somewhere that weakness is trickling in for our markets too.I do not know. When it goes up also, we get worried that it is not aligned to the economy and the fundamentals. Now if it is correcting finally, then also we are worried. Where is the problem? All markets correct and we can see it more in the broader market today. The indices came to the current level of Nifty and Sensex somewhere around 26-27 July, went up to a high of 11,700 odd in Nifty and thereafter it has been in a consolidation mode for the last one-and-a-half months. We should be ready for the market movement on either side, especially after the 50-60% upward movement in the five months. We should be ready for it to go down. I do not see any problem in that and finally if the correction comes and continues, then so be it. Correction is coming because of global markets. If global markets reverse 5-10-15%, are we likely to fall in line because if they will fall we will also fall?Yes I do not think there is any dispute in this particular point. We have risen when the global markets have risen and if they correct we will also correct. Coincidentally, on Monday the US market was closed for Labour Day so we did not have much of a clue on Tuesday. Whatever little clue the Indian market took was a clue from the intraday correction that was observed on Friday. Personally, I think if global markets correct, we will probably correct more and that is a possibility. Of course, it will be a function of the money inflow. We already saw after a reasonably good FII flow coming into the Indian market, especially in August. We might see some correction coming in and some outflow happening because if the global markets correct, that is where the correction could be more. Let us also keep in mind that the rise that happened in some of the sectors like automobiles, pharmaceuticals was quite sharp. Those are the sectors which will take lead in fall and as a result we could fall more than the fall in the global markets. What is happening in Tata Consumer? Suddenly there is excitement, momentum and it is getting PE multiples of Nestle and Britannia?Tata Motors, Tata Steel, Zee have also corrected. So for that we will again have to go back into the last one-and-a-half months. Market rallies keep happening. In the last phase of the rally, those stocks participate which have not participated so far. Two, it is more a case of announcements than actual numbers. In case of Tata Motors it is more a case of announcements by the Tata Group on making the company debt-free in three years. The actions are yet to be seen. These are the companies which rose in the last phase of the rally in the market or rather not rally but the index remaining at the same level. These are the stocks which will correct first and that is exactly what is happening. Specific to Tata Consumer, a little bit of restructuring was done by the management merging the brand and the consumers business of Tata Chemical into Tata Consumers. As I said probably the market somewhere felt that with all other good quality stocks having risen, index levels remaining steady or continuing to go higher, where does my additional money go? The additional money in all such cases tends to go into these slightly high risk trades and it comes off also very fast. That is probably what is happening or will happen if the market continues to correct. We have to be cautious. All these names which have risen because of the market continuing to go up or purely based on announcements or expectations and not backed by numbers will be the first one to take a beating. Where would you be a buyer if we were to decline a little bit further?If we were to decline a little bit further, it is the high beta sectors which will make a case for buying, namely banking and automobile. Let us keep in mind that automobile is one sector which has continued to show the numbers. If we go by the management commentary of auto OEMs as well as auto ancillary makers and by the market checks and feedbacks from the dealers and secondary registration of vehicles, the buying demand seems set to continue and at least was positive in August. Hopefully the festival season will keep the sentiments positive in October and November. Also, we will have to keep seeing it as we go along. Over and above, if the expected GST rate reduction happens in the case of two-wheelers, that will be a bounty. Let us keep in mind that the two-wheeler stocks which had risen after the GST rate reduction expectation announcements from the finance minister have given up their gains more than the level from which they had risen. So if we look at buying into the correction in the market then it is always a better strategy to buy high betas. If we want to buy at the current level of the market wherein correction has happened but not as much, probably the low betas and defensives. We have not seen the FMCG stocks participating in the market rise for almost three months now and if our expectation is that the market would not go down, will continue to consolidate or may in fact go up, then that is where the buying interest could come for the reasons of non participation. So that is the strategy I will follow depending on whether the market corrects or not. What is your perspective on the metals basket? Is there potential for outperformance within the space?Not really and the reason being that one, the stock prices actually moved well ahead of actual movement in the commodities in this case steel. It is true that steel prices have been going up and are likely to go up further, but the stock prices over the last two to three months have already moved up sharply by around 30-40%. A large part of the movement and the expected rise in steel volumes initially in the export and now domestic recovery, also seems to have been priced in. Now that coupled with the fact that we are trying to fathom whether the market will correct or not, whether it will continue to consolidate, whether it will start going up again, we do not know. So I would not probably be a buyer at this point of time even as a short term trader I would bet on the short side not the long side.MNC pharma is the new pocket of strength, be it AstraZeneca, GSK or Abbott India. They are all holding up quite attractively. Do you like any of the names? Frankly, I do not track MNC pharma space as much so I would not be able to give any specific recommendations. The only view that I will be able to give is that parents of these domestic Indian pharma companies globally have been moving up. AstraZeneca globally has been moving very fast and that is one reason they have been probably moving in India also. Also there is the fact that in terms of brands that they sell, there could be increased demand going forward. What is your outlook on auto and auto ancillaries?First, from a sectoral view, I do think that growth is likely to continue. We already have available with us the primary sales numbers of August which have surprisingly shown a very good growth especially in the tractors which have been continuing also in the two- wheelers and passenger vehicles. Two, move from there if we go by the secondary market checks. If we go by the commentaries of these companies, even the September demand for the auto ancillaries is full from their end. They believe that the demand will be there and as a result they want to fill the inventory. If we go by the secondary market sales and the registration numbers, the trends clearly seem to be suggesting that. Let us keep in mind that despite the market having corrected reasonably well, at least till now, the auto stocks have not corrected though but still they are down from their peak of about a week or 10 days ago. This is especially in the case of two-wheelers. So my view remains positive on the OEMs, two-wheeler makers like Hero Motors, passenger vehicle makers like Maruti and it extends to auto ancillaries also.
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