It is true that the past few years have been terrible for Indian equities. Returns have been poor, valuations were high and volatility even higher. A combination of these led to Indian investors opting to stay out of the stock market, instead opting to invest in safer bets like a fixed deposit.
Even now, the case is not too strong for investors to dip their toes in equities. The global economy is sagging, the eurozone is close to a break up and even the US economy is bucking under pressure. The situation is not all hunky-dory back home either. Interest rates are at an all time high, and yet inflation continues to rear its ugly head. The rupee has depreciated by a huge margin, the fiscal health of the country is worrying and faith in the government has almost vanished due to their inaction on the policy front.
The silver lining in all of this is that things can improve from here going forward. It is said that the stock market bottoms out a few months before the economy does. We have already had a bottoming out in equities, so this might just be the worst for the economy.
Speaking at CNBC-TV18’s Investor Camp, managing editor Udayan Mukherjee says that investors should look at the market for cues, not the negative headlines glaring at us from newspapers. Despite all the negative sentiment, the Sensex is still around 17,000 levels, bluechip stocks have rallied around 25-40% in this year itself. He persuades investors to look to the screen for cues, because it is now time to build one’s portfolio.
During the period from 2003-2008, Indian equities saw a strong bull market, which took stock prices to new highs. Soon enough, investors started getting worried that the Indian market was overvalued, and thus a not so good investment.
This time round, however, things are different. Sandeep Shah of Sampriti Capital points out that the Indian market is undervalued from even a five year perspective, and therefore it is a good time to step into the market. There may a few bumps here and there, but he asks investors to stay strong because there is a chance for strong gains in the future.
Shah predicts a risk-on trade in the market. He explains that there will soon be a surge in liquidity, which will remove the risk aversion that is present currently. It won’t be a runaway bull market, but things will start improving steadily from here on.
He also says that Indian macros will be relatively better this year, and therefore it is time to focus on the positives instead of all the bad news.
His advice is to bet on the consumer goods space, because he sees a strong bull market phase coming up. However, he warns that infrastructure and consumer goods companies may see more risk because of their dependence on government reforms.
All in all, the view is that the tides are turning, and this is the best time to step in and enjoy good returns.
Below is an edited transcript of Udayan Mukherjee's speech.
We have been doing these investor camps for many years now. In 2007 and 2008, people could not get in because there were crowds by the thousands; there were so many people that we had to turn away many. That was the time when the stock market boom was at at its peak, least in the last ten years.
Now, things have drifted lower, the interest has come down quite a bit. In the last five-six years, the stock market has not been good and very few people have made much money from the market. It is paid for the last five years to be in high interest fixed deposits, bond funds and fixed income.
But it has been five years already. and the stock markets have not done well. When it is five years without making money in any asset class, as human beings we always extrapolate. We say, what is the point of getting into an asset class which has not made money in five years. We have been so much better being in fixed deposits, so why should we even think about stocks.
That is typically when people go wrong, because we have already seen a down cycle of 5-6 years. It has been a long down cycle, maybe it will last for another year or two, but nothing lasts forever. I don’t need to tell you that. We have already had a protracted down cycle in the stocks. I know things are quite ugly right now - monsoons are failing, the government is not acting, Europe is in turmoil; you can get ten reasons not to buy stocks now and very good reasons too. Maybe things will continue this way, frustrate you for some more time, but over the next few months you should start asking yourself whether it is too late to start getting bearish afresh.
We would have done very well to be bearish about the market for five years. It is like saying a stock falls from Rs 100 to Rs 20, and at Rs 20 you become ultra-bearish on that stock because you think it will fall to zero. Sometimes they don’t.
So maybe things will turn in 6-9 months, making this the time where you should be thinking about the resilience of the market the last six months. I am sure it has not been lost on you that despite all this bad news, the Sensex is still 17,500 not 10,000. Sometimes these signals from the screen should not be ignored. The fact is that so many blue chip stocks have gone up 25-40% this year. The Nifty would have not given you returns but many stocks have started showing you good returns.
Maybe there is another fall left, maybe there are two falls left, but is the screen telling you that those falls should be utilized to start building a portfolio after 5-6 years. Those are the questions I think you should try and address.