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Atul Suri, Fund Manager, Rare Enterprises, said the market uptrend has not resumed. "It looks more like a bear market rally. We can see around 25% pullback from the lows of the correction. The correction was overdone and hence we are seeing a bounce back now. We are not in an uptrend until the Nifty goes above 5,400-5,500 levels.
Suri said he would look at booking profits when the Nifty goes up to 5,300-5,400. "However, I would look at exiting only if we see less signs of strength."
Excerpts from CNBC-TV18’s exclusive interview with Atul Suri:
Q: Are we still in a trading range or has the uptrend resumed?
A: I don’t think the uptrend has resumed. To some extent, it may be a bear market rally. The first fall happened in January when we were circuit down and subsequently again we tested that bottom and went slightly below it in March.
In the second fall, we oversold and things got a little overdone. When things get overdone, you do have a pullback on the other side. That is really what we are seeing, midcap and smallcap stocks had almost lost above 50% and really you have seen a 20% kind of jump that has happened since those levels.
The big wall of selling would not come in till we cross the 5,400-5,500 levels. I don’t think that we are really in a trend. Also, one should keep in mind that global markets behaved themselves very well. The US seemed to have broken technically from a neckline and has given a false pullback. I don’t know whether it is false, only time will tell. But it has kind of pulled back and things have been stable.
So, we have pulled back. But if you ask yourself the question, are people making money, the answer is no. The losses have decreased for delivery-based positions. But these are not very tradable markets. They are very difficult and challenging markets to be a part of.
Q: You used the term bear market rally. Typically, after falls of this magnitude, where the index falls 30%, what kind of pullbacks can one expect from the lows in percentage terms?
A: A 25% pullback is something that maybe we would have this time, and is something that is normal. If you go back and look at the charts, even the fall that we had in 2000, you will notice that the market just didn’t go down vertically. You would find that there were a lot of pullbacks that happened. These pullbacks happen because things get overdone, everything just gets beaten out of shape. Quality is not taken care of. So, there is a pullback.
Secondly, when the markets get very light and when the leverage positions get totally wound down and everything is kind of sold out, you do need people to hold stock. You do need to come back into the market to create that next down wave. So, this is the nature of the market. When you look at every chart of anything in the world, you will find zigzags. This zigzag is nothing but a case of being overbought or oversold. Even in a falling or bear market, it is not uncommon to see a 25-33% kind of pullbacks. That is what we are going through at the moment.
Q: For people who have got in somewhere above the lows from which the journey resumed on the way up, would you start taking profits from any upmoves from these kind of levels on the Nifty?
A: 5,300-5,400 on the Nifty is when I would really think of taking profits. But wouldn’t go against the grain and just book profits because those levels are breached. I really would like some weakness to come.
The silver lining in all this bearish talk is that every analyst is bearish. Everyone thinks that it is a bear market rally including myself. In lighter vein, whenever all of us analysts think one way, definitely that is a thing that is not going to happen. That is really brilliant because I do not know many people that have got in at those bottoms and are participating in it.
At 5,300-5,400 if you start seeing weakness, I would only then exit. The silver lining in this is that everyone is bearish. The market always does surprises people. You never know, so keep your fingers crossed.
Q: You need to open up shorts against the market now, isn’t it?
A: I don’t think so. One may feel that those are levels. But you never know because in a very secular bull market you will very often find that shorts are not very rewarding. Even in this fall, we have had a substantial wall. Not many traders in the Street, who I meet, have made money on shorts. Yes, everyone is talking short. But very few people have traded short and have made money on the short side.
So, it is very nice to look at these numbers statistically. But what really goes on in a trader’s book or mind is very different and challenging. After almost a 3-4 year kind of bull market, it is not very easy to go out and open shorts because mentally you’ve got into a certain state of mind. Shorting at very ridiculous levels also leads you to get stopped out.
So, it is a very challenging market. I consider them as periods of hibernation where really it is time not to do too much, reduce your portfolio size, and do fewer trades. The trends will come and it is important to be fresh mentally, and financially to really participate in that. You don’t have to be compulsively doing things everyday.
Q: Do you find leadership in the market right now? We have had some of the old underperforming sectors like IT etc pulling back. What could lead the market beyond 5,400?
A: Yes, one is seeing certain pockets of strength but the issue that really comes up is, are these stocks that can take markets or give breakouts to markets? The answer is no because of a few pharma stocks in the midcap space and a little bit in FMCG. I don’t think it has the legs to really propel a market. One of the areas that would be of interest to me is the oil and gas space. If one really looks at this current move, it was the oil and gas space that really started the move. Unfortunately, in pullbacks there are no follow-ups.
That means that their leadership has not emerged. Yesterday, for instance real estate and banks did well. One went out and bought them yesterday or today, and they were all down. So, it is lack of follow-up which is not visible and that is by function of the way we are in the current market position. In case we do pullout of 5,350-5,400, it is going to be the oil and gas space. This space is very important because of its weightage in the Nifty and due to the composition of stocks that it has had. It really has a multiplier effect on all other stocks and thereabouts.
So, this is a place I would look for. If one is specifically trading at the moment, one is not waiting for those kinds of breakouts. Certain midcap pharma stocks have been doing excellent stuff. A lot of them have had lifetime highs. The index is down about 20%, there are a lot of stocks doing lifetime highs, so probably there is some money to be made there. Some money is being made in the FMCG space but selectively. Power and gas is what I would look for if there has to be a big move.
Q: What about largecap names like Infosys or Bharti is there anything on the charts suggesting that the worst is over and they could be leaders?
A: I wouldn’t talk stocks specific. In IT, very often you do see these kinds of spikes. But again what is important is the follow-up. Look at it from a pure trader’s point of view. If a stock makes a breakout, I go and buy it. If I make money on day two and three I will go and buy more of it. If on day two and three the rally fizzles out, why would I buy more of it. I would in fact cut my losses and move out of it. So, for anything to become a bull market or to create wealth it has to have consistent upmoves. When bulls run there is a thunder and you are really not seeing that. Today, it’s one sector, tomorrow it’s another sector. So, sectors like telecom had moved up quite a bit in the last couple of days, but where is the follow-up. So consistent follow-up trends on the upmove are important. People have to make money to put more money in the market. That is how volumes come about. It is a vicious circle but then that’s a reality.
Q: What's your base case scenario? A lot of people have been talking about going back and revisiting the lows. Do you think that’s likely?
A: We could even go below those lows. The fact is that it is not going to be that fast and dramatic. One is going to have a lot more pullbacks. In any bear market, it really happens in three-legs. The first leg is very dramatic and sharp because this is where the leverage comes out. We have really seen that. Those kind of circuit falls happen when one is highly leveraged in the F&O space, and there are margin pressers etc. Then, one has these kinds of pullbacks which we are seeing.
In case it’s a bear market and go lower, the next phase is going to be much more grinding because there is not much leverage. There is no panic leverage. Whatever F&O positions are there, they are of people with very deep pockets like institutional players, hedge positions, and thereabouts. I do feel that we may have a leg down. We may in fact go below the recent lows but it is going to be more gradual. It is going to have upticks and downticks and here really it is not going to be across the board as there will be some sectors that will do well like me mentioned like some of the pharma and FMCG spaces. Some sectors may really sort of can out but this is going to be a more difficult and frustrating phase. We have seen that in 2001-02, how all days are not good and all stocks are not bad. So, it is phase. It is going to be grinding but then that’s reality.
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