We are in the midst of global rally and emerging markets are likely to lead the next leg of the rally, Atul Suri of Marathon Trends said in an exclusive interview with CNBC-TV18.
Moneycontrol News/ CNBC-TV18
Indian market which has gained over 20 percent so far in the year 2017 and is among the best-performing markets in the world has more steam left. So, if you are waiting for a correction, chances are market may not oblige you with a big one.
If you are a long term investor, allocate money to equity markets as the rally on Nifty might just well stretch from 10,000 currently to 17,000 in the next 4 years, said an analyst.
We are in the midst of global rally and emerging markets are likely to lead the next leg of the rally, Atul Suri of Marathon Trends said in an exclusive interview with CNBC-TV18.
“I expect a 40% kind of an up move in global equities in the next 4 years and 70% of the 40% up move in global equities is likely to come from emerging markets,” he said.
He feels India is a leader in emerging markets currently and expect Nifty to be at levels around 17,000 in the next 4 years.
A big boost has come from domestic flows, thanks to regular investments by retail investors via systematic investment plans (SIPs) into Indian equity markets.
Suri sees a double-barrel action in Indian market if domestic inflows stay intact. On the sectoral front, oil & gas, metals are the two most interesting sectors in last 2 years. The 2-wheeler auto stocks are multi-year trends.
Looking at developed markets, Suri who tracks technical charts very closely said that he does not see leadership coming from likes of US or even EU markets going ahead. The US markets are likely to consolidate more.
So which asset class will make money or lead the next leg of the rally? It is the EM space, says Suri.
Emerging markets have been a laggard for quite some time as it took some time for most markets to take out 2008 tops for years. But, now they are some very good breakouts in this space.
“The whole EMs might have been an underperformer but the charts have shaped out really well. If I look at the charts, we could see almost 70% move in EMs in next 4-5 years. The next space to be is EMs as they might just give 14-15% CAGR in the same period,” he said.
Investors need not be all that fearful as we are part of a global bull market and India is a subset of that – and we are just milking all the way, said Suri.
Below is the verbatim transcript of the interview.
Latha: Are markets in the pink of their health? Is every dip a buy? Is this a robust rally that we have on our hands?
A: I think so, though I do not sense that sentiment when I speak to people in the street. There is a lot of concern, there is a lot of this is not good, that is not good right from Brexit to Trump to Korea now. But if I just look at the markets, I tend to look at markets in a bit bigger timeframe and bigger canvas. So if I look at the markets, it is not just India, it is a global equity bull market.
Something I look is something called the FTSE All-World Index. This is a very broad-based index which has about 49 countries, 3,000 plus stocks, so you are talking about the globe as a whole. Emerging, developed, all are in it. India is also in it and you will notice that this is a chart that has just broken out into lifetime highs. It has just crossed the 2008 top. And when I do projections, when I do those studies, I think we have almost a 40 percent upmove in global equities in the next 4-5 years.
So, we have already broken out and we have had about a 10 percent upmove, but if you estimate, project the ascending triangle what call technically, this projects to a figure of around 450 is about a 40 percent gain in about 4 years.
Latha: FTSE All-World Index 320 now, so 450 is what it will go to?
A: Yes, which is almost a 9 percent compounded annual growth rate (CAGR). CAGR of course, means that there will be some good years, bad years, corrections will be a part, so let us not think everyday is going to be pink, you will have red. But the fact is that you are in a part of an equity bull market. It is not just happening in India, you just cannot pinpoint ABC, XYZ.
Look at the US. Let us get down and study the components. 50 percent weightage is the US. US has taken out the 2008 top way back in 2014-2015 and it has moved 50 percent from there, the Standard and Poor (S&P) 500 whereas the world index is just breaking out right now.
Anuj: Let us differentiate the charts then, developed markets (DM) and emerging markets (EM). We have had a bit of a dichotomy. Right now, all markets are participating, but how would you differentiate the charts?
A: Just as in our markets, when our market goes up, not all stocks go up. You will have leaders and laggards. So when I look at this index, the FTSE All-World, 50 percent weightage is the US markets. And as I said, the leader so far, these current breakouts, the leadership has come from the US.
But when I look at the US markets like the S&P 500 and I look ahead, I do not think the leadership will come here because these markets have run up very hard. They may get into consolidation and a little bit of performance, but not that outperformance and leadership. So next is to look at the next subset which in terms of weightage which is the European markets. Those charts also, are not very pretty. In fact, you had a 2000 top which was not taken out in 2008. There was a 2015 top which is still very far away.
So barring countries like Germany where you look at the DAX and charts like that, you really do not sense leadership at the moment from Europe.
Latha: Not from FTSE either?
A: Yes, kind of, but I do not think they are going to pull that kind of weight. They cannot be an asset class. You cannot say that bet on Europe as a whole.
Surabhi: EMs, more than that, India?
A: So, the third subset and that interests us is the EM space. If you look at the EM space, you will find that this also had been a laggard for quite some time. We did not take out the 2008 tops for years. But now, you see that there are some very good breakouts that are happening in the EM basket and you can look at the chart and see the kind of breakouts that are happening. You will notice that India has had its leadership. We are almost 50 percent higher than that. Countries like China are still 50 percent from the 2008 top down. You will find Brazil and Russia which are just breaking out, just crossing their 2008 hurdle.
So what you will find is that the whole EM space was an underperformer. But the charts have sharped up very well. So if I look at the charts and I project, my studies tell me that we could almost have about a 70 percent move in the EM space in the next 4-5 years.
Latha: So in this 40 percent move that you are expecting in your FTSE World Index, about 70 percent of the contribution comes from the EMs?
A: Yes, the outperformance from the EM basket, so just as the US was an outperformer in the first stage, I feel that EMs are going to be the outperformers and that is what is going to lead the global markets higher. So what I think is the next space to be in, in global markets is EMs. EMs always tend to move much faster by their very nature. So about a 70 percent upmove in the next 4-5 years, which gives us a 14-15 percent compounding CAGR for the next 4-5 years.
So what I am trying to tell you is one need not be all the time pessimistic and fearful. We are part of a global market. India is a subset of that and we are just milking it along the way.
Anuj: Let us talk about Indian markets and I want to talk about two sectors which have really been holding the market. Banks, Bank Nifty and metals and it was your big call as well. I remember last year that it is just a start of a rally and it could just expand. But, how long can the expansion continue here?
A: Can I take a step back and talk about India?
Surabhi: Yes please, because I was going to ask you that if you are talking about the EM basket doing 70 percent over the next 4-5 years, which is the leader market?
A: I think India has been a leader. As I said, it broke out early, but I feel that if you look at the foreign institutional investor (FII) flows, they are pretty negative for the last few months. So there is a bit of consolidation and there is a very big catch-up trade happening in countries like Brazil and Russia.
Coming to Anuj's point about commodities and metals, those underlying commodities are doing well and that is helping those markets. But when I look at India and I project for India, a longer term trend, I look at longer term trends, I do not look at markets day-to-day basis, I think that we also are going to be an at par. We are going to have almost a 17,000 kind of Nifty in the next four years which is again almost a 14 percent or so CAGR for the next 4-5 years.
Now it does not mean every year it is going to be positive, it does not mean everyday, there will be corrections, yes we will get tested, yes doubts will come. But, the big story for an Indian investor is that should he be in, that answer is yes.
Anuj: A lot of people talking about the six figure mark on the Sensex. Any chart indication of whether we could head there?
A: I think I will ride one wave at a time.
Latha: No, if it is 70 percent on the Sensex, we are looking at 50,000.
A: Yes, I still think we will have waves. From my current readings, this is what I see. I see around a 14 percent kind of CAGR that happens. And as I said, till now, we have only seen a single barrel fire. We have only seen domestic flows and FII outflows. But at some point in time, if the whole EM basket takes off like this, you will start seeing positive flows and if domestic flows, thanks to the systematic investment plan (SIP) route remain constant also, you will almost see double barrel action. So the thought that India, it is all done, what if we genuinely six months forward, start seeing industrial revival?
Surabhi: Sometimes I wonder, price to earnings 19-20 times expensive, what 50 times P/E, 60 time P/E?
A: Who knows what is the right P/E? Can you define it?
Anuj: We don’t know the earnings part of that as well. We are talking about maybe earnings picking up – now you can answer my question.
A: What I really think is that metals is definitely a very interesting space to be in. If you look at it, two sectors I think that highlight, banks has been a multi-year bull market. The private banks have been leading it, but if you look at I think the two most exciting sectors in the last one year has been oil and gas and metals and they have had a same story. Post 2008 they were battered. You touch them and you got frustrated. You did not lose big, you never made money and the rest of the market went up.
So what we saw was in oil and gas stocks earlier, the way the breakouts happened, whether Reliance Industries, HPCL, BPCL, and the kind of returns that those kind of stocks gave you is fantastic. I think that is what is actually happening in metals right now. I think metals is just starting out because when I look at the charts, it is not just the price moves, it is the quality of moves. When markets correct, these guys don’t get affected. If you look at the underlying commodity charts globally, you will notice that there is a very large trend being played out in the metal basket and I think there is a lot more to go.
Latha: Let me get a little granular now. You spoke about banks and you spoke about private banks, but actually the leaders here have also been the NBFCs, because you are not been in the Nifty so much, we have not spoken much about them, as well public sector banks. Is that a dog that you should not touch, and is it an NBFC and private bank ride?
A: Intellectually we can sit and discuss which is the bottom but it really does not matter. What matters is the trend and are you able to ride it. HDFC Bank, if I told somebody three years, four years, five years, people say listen that is a stupid thing, it is so expensive and this and that but how wrong could you be in that and not just a case of price movement, it is also question of the quality of move. It is a stock that never gave you sleepless night. It is not a stock that you have to sell next morning in panic, etc. So essentially what one should look for and especially when the kind of scenario I am projecting are compounding stocks.
Latha: I take your point on private banks completely. I am just asking you outside that where would you look?
Surabhi: Housing finance, all these new ideas that have sprung up in last two-three years.
A: I see no reason why one should not be in them. One should have already been in them and overweight. I see no reason why one should exit because yes you will have issues of undervaluation, overvaluation, but as I said, who knows what is the right valuation. I know what is the trend, and I know how to ride it and I will be there.
Anuj: Autos, they have also had a good time?
A: I think so. Look at some of the two wheeler charts. There are not big weightages in the auto index, you look at some of the two wheeler charts, these are multiyear trends and that is what you got to be in. You can’t be in, out day on day. It just enriches the broker. You have to identify big trends, sit on them because when you have got the whole wave with you, you just have to go and pick the right thing and surf it. You don’t have to fight the ocean; if you fight the ocean, it will break you, it will break your surfboard, don’t do that.
Surabhi: There are people who will try and scrape the bottom of the ocean to find that hidden pearl. I am talking about if you are seeing any indicators, any sign saying the dogs have started to move or might start to move?
A: Everyone has a style and good luck to everybody. I am a trend follower. I don’t believe in predicting trends, I believe in identifying trends and riding them. Riding a trend is a big challenge because you get emotionally challenged and whenever the trend changes, you exit. It is there in front of you; price for me is what I see, and it is the tangible and I prefer playing on something that is tangible.
Surabhi: So no cyclicals, just stay out, stick with what is working right now?
A: Metals are cyclical, aren’t they? Metals I think is a great trade.
Surabhi: Industrial cyclicals, capital goods, power, all of these.
A: There are some in the PSU space, there are some very interesting charts that are shaping out.
Latha: The other one I wanted to ask you really was gold. Therefore avoid?
A: Gold beyond USD 1,400 I don’t see any reason to be in it. Yes, you will have bad days and good days, Korea shoots out a missile, gold goes up, but if you are looking for a big trend, I don’t think it is there in gold. However, if you are looking for a big trend again in the metal space industries, look at copper. That has had an amazing chart. I think copper is again something that – and it will get reflected in Indian stocks. Either you can trade the commodity or stocks, but I think you will look at copper, you look at aluminimum, look at zinc, these are some amazing charts happening out there.
Surabhi: What about currencies and rates, anything that caught your eye? The dollar is being battered, people are wondering what is happening with the US tenure, it almost fell 2 percent, now it is reviving. Anything that is on your radar?
A: In the dollar, DXY is a really scary chart. One never thought it would break those very important levels but it is slipping down and you have your fingers crossed because the charts look pretty bad. So, I know that currencies tend to have mean reversion trades and they don’t trend the way stocks or thing commodities do, but the dollar chart is not a very pretty chart.
Anuj: You also in the past studied the fund flows and the big hedge fund behaviour. What have you made of this huge selling that we have seen in Indian market from FIIs and the fact that this market is being pushed up only by domestic liquidity?
A: First the domestic liquidity, the issue is that you are seeing very good SIP flows, maybe around Rs 5,000 crore from what I heard. Look at some salaried class’s thought process. Here he has got an alternative -- I go to renew my SIP, maybe a one year SIP. What is my alternative, a 5 percent fixed deposit? Real estate where there is an entry-exit barrier, the ticket size is very large, so, what am I likely to put my incremental money in? Is it going to be the incremental FD of 5 percent or am I going to increase my SIP amount? So, what I really feel is that the most beautiful thing that is happening is the whole SIP culture that is really revived Indian markets. So, that gives me a great optimism about Indian markets.
As far as FII selling goes, to an earlier point, I feel that what is happening is that you are having a very big catch up trade. Sometimes you have leading stocks and you have catch up stocks, so, you book profits and the leaders which may have become expensive or whatever and that is why you will see that a lot of flows are happening in countries like Brazil, Russia, Argentina, and maybe to some extent some of the flows from India are going. A lot of people also betting on China because of gross underperformance. So what I feel is the shifting trade is happening and just as in the market, you have a catch up phase, we are having a catch up phase, but at some point leaders will emerge and in the emerging market, I think India is one of the most beautiful and sublime charts.
Latha: In your emerging market (EM) basket, your 40 percent jump in all world equity indices, probably 70 percent is going to be contributed by the EM. The pecking order in EM would be India at the top?A: I think we will have phases. However, yes, I think India is one of the best looking EM baskets. We are having a very big catch up trade thanks to commodities and countries like Brazil, and Russia. So if one were trading that, one would be there in the shorter term, but I think the long term trend in India is great. People keep waiting for correction, and people think that markets will oblige you, they will correct 10 percent, I will buy and in next year market will go up; it never happens that way. The corrections are not tailor-made for you. It is best to be in, ride the strong sectors, ride the strong stocks, and I think it should be a very rewarding next four to five years.