Mkt to stay choppy, stability post QE tapering: Blackridge

Nifty today fell more than 200 points as better-than-expected US jobs data resulted in FII outflows, says Arindam Ghosh, MD & CEO, Blackridge Capital Advisors.

Also Read: Why Mark Mobius is staying put even as Indian mkt bleeds
The positive US jobs data means Federal Reserve will start tapering its stimulus plan, starting September, leading to higher volatility. Markets are going to be extremely choppy and portfolio is going to get adjusted and rebalanced, he adds.
Ghosh told CNBC-TV18, going forward, there could be more downside because momentum on the downside appears to be quite strong and probably that is going to continue till there is some kind of a reversal of interest cycle.
He feels some kind of stability will probably come after QE tapering is announced, and that maybe the right time to buy stocks and go long. Below is the verbatim transcript of Arindam Ghosh's interview on CNBC-TV18  Q: Bad day for the market, for the last two or three days it did look like while there was short covering there was some genuine buying which was coming back. Today almost every bull's back would have been broken, how do you approach the market from now on with 200 point fall on Nifty?
A: What we are witnessing right now of course today it is more out of the overnight data that we have seen coming from the US as far as the labour market is concerned. We have already seen overnight yields hardening a bit so some kind of an emerging market sell off, we have already seen countries and economies with higher current account deficit getting impacted and of course India is at the forefront. So, it is kind of bearing the bulk of the onslaught. So, the capitulate situation that we have seen in the broader markets is now kind of feeding into the large caps as well and in a way it looks as if there is no place to hide for the moment. Q: If in case the Fed tapering does begin and if you could give us a timeline on the probability of that starting as well how much more pressure do you think emerging markets such as India could face or do you think that the asset reallocation is already done?
A: Given the data that was coming out of US, one thing is very certain that as we get into September volatility is going to increase, tapering is going to start so markets are going to remain extremely choppy, portfolio is going to get adjusted and rebalanced. We have seen a fair amount of that happening but there is more to come. We have seen the market holding up on the back of some pure large cap stocks so that has to correct.
The economy has actually been going through a lot of grind and challenge whereas if you look at the Nifty and the Sensex level it has been holding up. So, it is the Sensex and the Nifty kind of playing catch up to what has been happening in the carnage that we have seen happening in the broader markets.
So, going forward it could well be that there is more downside which is expected because the momentum on the downside appears to be quite strong and probably that is going to continue till we get to see some kind of a reversal of interest cycle or something like that happening after two or three quarters from here. Q: That is an interesting point you raised because the broader market in India is back to 2009 kind of zone. In fact some stocks are down to 2003-2004 kind of levels. Somehow the market was still holding on because couple of sectors like IT, pharma and FMCG were holding on and even private banks. Private banks have cracked, what about IT and pharma – do investors still continue to make money there or at some point do we expect crack over there as well?
A: Our sense is that overall the dollar is going to continue to remain strong and with the kind of recovery that we are seeing in US, other currencies including the rupee is going to stay under pressure. So, in that kind of a situation some of the export-led sectors will continue to remain beneficiary purely on account of the fact that currency is going to weaken from here not on the back of fundamentals. So, whichever way you look at it valuations are extremely expensive, but having said that investors should be cautious, asset allocation is going to be the biggest challenge whichever asset class you look at whether it is equity or whether it is fixed income.
In India also we have seen what has happened to bond yields and the impact on the debt side. You see how gold as an asset class obviously has strayed off the radar. Equity if you look at five years data there is nothing that can excite investors to come back to equity in hurry, but having said that one needs to take a longer term view. Over my 20 years plus in the stock market we have seen different cycles.
One should not panic, every chaos or this kind of a panic should be used as an opportunity but though this is not the level to buy into stocks right now. Investors should be well advised to kind of see through this period. As and how we see some kind of stability probably that will come in after we see the tapering of the quantitative easing (QE) getting announced probably that is a time to kind of into long positions. Q: At any point if someone would have bought some of the beaten down stocks cyclicals for example, Bharat Heavy Electricals Limited (BHEL) looking at the value parameter they would have lost money. So, what would convince now that maybe you should go out and buy this market because it doesn’t look like that – the ticker is not showing any signs of stability?
A: Whether it is cyclicals or defensives the situation that we are in right now is not really the time to buy. There is tremendous amount of value which is kind of emerging but when markets get into this kind of a freefall it is better to stay away, do a bit of fence sitting and then get back into the market when there is some kind of a stability or direction coming into the market.
Right now there is fair amount of insanity in the market, in a way it is a deadly cocktail of global factors, domestic factors which is kind of compounding the panic. So, the first step or requirement from an investor's point of view is to kind of stay calm. In any kind of a cyclical cycle we would always see over a certain – with a regular frequency this kind of situation happening, but given where we are today one should wait and watch out. Q: In terms of trade today have you heard anecdotally whether there is any sort of foreign institutional investors (FII) redemption which is happening on the equity side as well as on the debt side?
A: I will not be able to comment on that. One would have to wait for the data to make an assessment of that.