Feb 04, 2016 08:03 AM IST | Source: CNBC-TV18

ETF concentrated selling weighing down market: Ambit Investment

Currently, the market is only following global trends without much consideration to domestic fundamentals, says Vaibhav Sanghavi, MD of Ambit Investment Advisory .

Vaibhav Sanghavi, MD of Ambit Investment Advisory believes that the selling witnessed over last few days, particularly towards the last hour of trading, is largely due to exchange traded fund (ETF) outflows.

“The intensive selling pressure seen towards the end of trading time over last few days is a typical indication that ETF outflows have started, “ Sanghavi says.

Sanghavi believes that in such market even the otherwise relatively safer bets are hammered. “In a market where there is not much left, even a small amount of selling can impact stock prices significantly, “he adds.

Sanghavi believes that currently the market is only following global trends without paying much heed to domestic fundamentals.  

When things stabilise globally, that is when crude and base metals rebound, then we could witness commensurate recovery in local markets, he feels.

Below is the transcript of Vaibhav Sanghvi’s interview with Anuj Singhal and Latha Venkatesh on CNBC-TV18.

Anuj: We have seen quite a bit of panic selling now. What do you make of that and what is your advice at this point in time?

A: The thing is what is happening for the last two days is basically in the last 45 minutes to one hour, we have been seeing some intense selling pressure and generally what happens is basically when this kid of selling happens in the last half an hour to one hour, it is an indication that the exchange traded funds,(ETF) or the passive money is starting to get active again in terms of the fund outflows. Now, we have been maintaining that emerging market flows have been negative. Apart from two days in the last week, the flows have been considerably negative about USD 1.8 billion for the month. So, we are seeing that this ETF flows continuing again and that is why the concentrated pressure in the last half an hour to one hour. That is about the technical piece of the market.

In terms of fundamental piece, there are too many variables out there globally including oil, China, what is happening to Japan. And you are now starting to see Japanese yen again starting to appreciate and at the same time, US tenures are about 1.85-1.86. I do not know where this is going, but it shows more towards flight to safety.

Latha: Today, what we also saw was in the last hour that you spoke, even some hither to revered names getting stamped for instance Ashok Leyland ends down 4 percent and about 2 percent came in the last one hour. Likewise, Jet Airways, here is a stock which logically should benefit from low crude prices. And even likewise the logistic stocks, Allcargo Logistics. It was stocks like there where we saw a significant amount of selling towards the end of day. Should we therefore think that people are creaming away money where there is? And yesterday, we also saw domestic institutions selling. Is there a bit of fear that that money will also run out?

A: Definitely there is fear. The fear is that that the systematic investment plans (SIP) that people put in the domestic funds for the last one year has not seen any commensurate returns on the equity as an asset class. At the same time, on addressing your question on the other stocks, it has to be looked in combination of one, the liquidity of the particular names, that there would be less liquid names. And in the market where there is not much depth, a small amount of selling can also impact the stock price to a great extent. But, I would definitely go back onto the point that it is more to do with the ETF concentrated selling for the last half an hour to one hour which is impacting the market at present.

Anuj: That is a very good point you made, because this market is falling on very low cash market volumes and if you see the institutional side of the market as well, it is not that we have seen aggressive selling, so would you expect the reverse to happen as well if the global mood changes? Would you expect the upside also, or the rally to be equally sharp?

A: What we think is basically, when things stabilise globally, which is when oil stabilises and we have seen to an extent that the base metals have stabilised, and the other global market stabilises, we think that the commensurate recovery which might come to Indian markets can be a little sharper. However, till then, we will continue to be volatile, and we will continue to follow what the global does. So, it is not about domestic markets, not about domestic policies, it is absolutely global. So, one has to keep track on global markets at present rather than more focused on domestic side.

Latha: So, what are you telling your high net worth individual (HNI) clients, your portfolio clients? Are you asking them to use this to go and add to some positions at least or are you just asking them to preserve cash?

A: For us, as a fund, which is Ambit Alpha Fund, which is a long/short fund, we have no problems going on to the cash and we have that liberty of going into cash. We have been into cash for quite considerable amount of time and because of which we have been able to generate positive returns versus what the market has done. But, we are closely watching what is happening globally and once it settles, we will probably tell the clients that we will be going bullish again. But till that time, wait and watch.

Anuj: What about the midcaps? Of course, it is a large class out there and you cannot classify them in one segment, but still we are seeing market consistently weak, we have seen so many stocks lose 30-50 percent of their values this year. It has been a rank bad year for portfolio investors. How does one approach that space?

A: In case of midcaps, we have seen fantastic performance in the last one and half to two years and part of that reason I will attribute it to the consistent domestic inflows which is happening on to the mutual funds. So, you will always generally have seen that whenever there is a good amount of inflow into the domestic funds, midcaps is a sector which generally outperforms the largecaps. What we have seen in December and probably in January or the numbers which are not out yet, we might see that the flows in the domestic side are abating a little bit and because of which you might see some amount of pressure coming back to the midcaps. Any which way, midcaps are trading at a premium to the largecaps which generally is not the case. So, I would be pretty cautious on the midcaps as a space and at the beginning of the year, generally in January and March, you generally see pressure on the midcap space, so I would rather avoid at this point in time and see value in the largecaps.

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