Mkt momentum to stall, buy midcaps: Shankar Sharma

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Mkt momentum to stall, buy midcaps: Shankar Sharma

Shankar Sharma, Managing Director of First Global said the market rally may come to an end with a few weeks' time or a month or two. He however added that the best trades to undertake now would be metals and oil, which can outperform.

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Q: What would you look at as a first warning sign of flagging momentum? Of course the market will move sharply maybe but in advance would you look at either the price of crude or dollar-euro or anything which can tell you that the music is beginning to fadeout?

Sharma: When global equity start to underperform global commodities that's the first sign that I would want to watch out for because normally the twin should go in the same direction by and large. When the two begin to diverge and you can see a bit of divergence creeping in, you are seeing markets like China - India is belonging to a different planet presently and it's on a nice high so exclude India from the basket just now - other markets have been a little bit of a struggle whilst crude has been on an absolute fire, commodities, industrial commodities have been doing well. Gold, of course, doesn't belong to the same camp but that had an okay run from USD 880 per ounce to USD 950-960 per ounce.

That disconnect is what I would watch out first and foremost and I think you are seeing very early signs of that disconnect beginning that global equities are beginning to struggle, global commodities are rocking. I am not saying it will be an exact repeat because markets don't normally repeat the same script that quickly but I am just saying, make sense to be cognizant of what happened in May-June-July-August 2008 - a similar situation happened. I am saying that's the one thing I would watch out for.

Q: You started the discussion by saying you still see the broader market outperforming. Do you think that midcap have not caught up enough or because of the fact that they are still so much blow their 2007-2008 highs that they can carry on for a bit longer.

Sharma: For a bit longer. I think if we just look at the highs of most midcap names including even some largecap names there like I said not even in striking distance of their highs. Given that amount of room on the upside there is nothing to say why they can't be up 20-30-40% in a very quick span of time. Like I said Suzlon on a good week puts on 40% so why even talk of weeks where you can do that in a few days.

Q: You described yourself as a fearful bull at this point is the accent on the bull or on the fear?

Sharma: It's an oxymoron, right? Bulls are not supposed to be fearful; bears are supposed to be fearful because the tide is always against them. I think I am fearful. You can place equal weights on both. When I talk to folks and I tell them that you should go out and buy all these rubbish companies and they say what has happened to you? What are you saying? And I say, yes, you have to lose it if you have to make money in this market because if you had bought NTPC over Reliance Power, you were the biggest fool in the world. You have to go out there and buy companies which have greater promise of the future but less promise in the present and that is the trade we are on. When you are on a trade like that, you have to be fearful.

I am not a kid out of school who starts to believe the the goodness of markets is to make everybody rich. It is not my perspective on markets. The markets are meant to make everybody poor and only a small percentage rich. I want to belong to that small percentage. Hopefully my clients also want to belong there as well. That is why I am fearful. The kind of stocks that are going up - and not the stocks that ordinarily - would not make you sleep peacefully at night, but, that said, markets do not turn to suit your own investing philosophies, you have to turn your investment philosophies to suit what the market is asking you to do at that point in time. That's what momentum investing is all about.