Brace for 21000, don't wait for correction: Ramesh Damani

Ramesh Damani, Member of BSE says there is nothing untoward happening right now that would suggest that the Sensex may not touch 21,000 in the near future. After Diwali, the market almost promptly sold off but made up for it in just a session or two, which is typical of a bull market. However, more importantly, Damani says the individual price action has been "exceptionally strong" this time. "The individual stocks that have doubled or tripled...that can’t happen in a bear market," he told CNBC-TV18 in an interview.

There has also been good leadership in the market from the likes of pharma, media and consumer sectors. In the first stages of a bull market the indices don’t make headlines, the news doesn't make headline. Internally, the market starts building a base for a greater move. And that's what's happening right now, says Damani. "It is only when commodity prices and interest rates start going down is when you see the second leg of the bull market," he says.
For this second leg of the bull market, investors might need to wait until February or March, after the Budget, says Damani. Also Read: Mkt optimism on positive newsflow, sustained upmove: Rel MF
However, Damani says one should be cautious around the 21,000 level on the Sensex. It is a very important psychological/technical level for the market.  The market has made a double top at that level two Diwalis ago— it peaked out at that price and then had a very straight line fall, which makes it a triple top.
"We will know that for sure only after time (whether we are) in a new bull market and the new bull market at some point inevitably will take out 21,200," Damani reiterates. Below is an edited transcript of the interview on CNBC-TV18 Q: Is there nothing to suggest to that the situation is any worse?
A: It looks like clear sailing for the market upto the 21,000-level, which it probably should reach sometime early 2013. Till then, it seems like the market is on course. Q: Are we in store for a bull market next year?
A: The market is behaving like that. After Diwali, the market almost promptly sold off and after seven days of falling continuously by 30-50 points, it recovered in one session. That is typically what happens in a bull market. The market shrugs the bad news, goes higher and seems to conquer whatever bad news there is. And individual price action is extremely and exceptionally strong.
The individual stocks have doubled and tripled already. That cannot happen in a bear market and there is a lot of leadership in the market among the pharmaceutical, the consumer and the media sector. So there is good leadership, good stock selection and very good market price behaviour.
Typically in the first stages of a bull market, the indices nor the news make headlines and  internally, the market starts building a base for a higher move and that's what is happening right now.
It is only when commodity prices and interest rates are going down, will the second leg of the bull market begin which might begin in February or March after the Budget. I am very circumspect of the market touching around 21,000. Q: Will you be cautious and reassess every time the market approaches an old peak or do you think at that level, a lot of the good news is priced-in and it is prudent to be a little bit less euphoric?
A: Probably equal parts of both. I think 21,200 is a very important psychological, technical level for the market. It has made a double top at that level two Diwalis ago before its recorded a straight-line fall.
If the thesis that we are in a new bull market is proved correct, the market will reach that level eventually. In my opinion,– and only time will tell – the market is at the start of a bull run and at some point inevitably it will cross the 21,200-level. Q: On what count are you feeling most sanguine, is it the local set up now or is it that you think there will be a clean global resolution?
A: There is always a reason to fear the market. It is only when you are complacent that you should be worried about the market. Only when there are no clouds on the horizon, is when every piece of good news is priced in. But investors are not looking at the underlying strength of the market. When the macro-factors straighten it out, the Index and the stocks will be significantly higher.
Markets do not give you cheap stocks and good news at the same time. So my feeling is that this is as good a time to perhaps put your money into the market. Yes, it will be volatile, but if you had put your money in the lows of December or in June-July, you have done well. So I think the naysayers will be proved wrong. Q: Where is the floor for this market now? For somebody who has missed out and is feeling bad about buying at close to 6,000 Nifty and is waiting for a dip to just emotionally have the sucker of buying slightly lower, where would you suggest there is a floor and a dip towards those levels should be used as opportunities?
A: That question I am never been able to answer successfully because, if I tell you 1,500 of floor, market is inevitably to go to 5,740. So I cannot figure these things out, but my sense is it would be a mistake to try and wait for a correction to buy into the market. The market will go to 6,100 before it corrects seriously. There are good stocks available and people should expose themselves to equity.
One of the sad features of this market is that though retail has been selling, it has not been entering into the market. I have very strong feelings about that. I think they are making – in my opinion – a mistake because given the fact of India’s demographic and income levels.
As long as initial public offering (IPO) market does not go overboard and produce Rs 50,000 crore in the IPOs in the next six months, I think there is an emerging shortage of floating stock in India. The foreign institutional investors (FIIs) have been bought so much and mopped up most of the floating stock. So I think people who are waiting for correction might be a big disappointed. Q: Is it the time to start getting excited about midcaps, because while the index is just a 300 points away on the Nifty from an all time high, lot of midcaps are still 50 percent lower than their peaks hit 4-5 years ago, do you think in 2013 we could get serious outperformance from midcaps?
A: I think we are already getting that. Just that they have fallen so far, I think big midcaps in December lows or even June-July lows, you have doubled our money in those stocks. So yes, it is good time to be in midcaps as it was in December and July, but we continue to find great value among the midcap space, so yes, I would agree with you. Q: You were talking about the IPO market. Anything that excites you because an entire canvas has opened up- there is Bharti Infratel, CARE and a lot from gem-and-jewellery?
A: It is still early going. I think the media IPOs that came a few weeks early excited me. Those gave very good returns. I am generally not a big votary of these jewellery stocks. So I am going to take a pass on that. Bharti and CARE probably deserve a second look but I have not looked at them yet. Q: I hope you have not sold out your media-rights issues which you bought, on which you made 70-80 percent very quickly?
A: As I have said many times, I believe that media sector is deeply undervalued and it has perhaps, the potential of having some leadership qualities during this run in the bull market. So I do not know what I will do tomorrow, but as I am speaking to you, I have long positions in almost all the media stocks. Q: Have you turned a believer in any of the high beta lot, would you buy real estate today?
A: I have some quality exposure to Godrej Properties and National Buildings Construction Corporation (NBCC). There is a lot of traction in the lower-rung stocks. There is just a dichotomy there. When you look at the balance sheets and look at the prices, you feel these stocks are screaming 'buys'.
But then I look at north Mumbai and I keep thinking that the developments out there are reaching some sort of 'bubble' proportions. The quality and quantity of construction as compared to the prices in North Mumbai are not indicative of prices going higher. I think there is some sort of oversupply in the northern Mumbai region. So you have to pick your stocks a bit more carefully in the real-estate sector. But generally, I think good real estate stocks would do well in this run. Q: You have been a long-term tracker of these liquor stocks such as United Spirits and the whole UB group. What did you make of that offer and how the stock zoomed to Rs 2,200 and the way United Breweries has been moving these last few days?
A: I cannot justify the valuation. Sometimes, you just have to let the market decide on its wisdom on the value of a particular stock. Clearly it has not been valued on an earnings basis.
In terms of United Spirits, I think it represents an opportunity. I think I would be a buyer on some serious correction in these stocks because ultimately this will become one of those classic FMCG companies in India with an extraordinary P/E.
The dilemma here, in my view, is that Diageo is not going to get to 51 percent which would make it extremely uncomfortable. So how will it increase its holding from 26 percent to 51 percent?
So it will have to make some actual shareholder-friendly moves in order to get to 51 maybe by merging Diageo Private into this company, maybe by acquisition. So my sense is there is a lot of money still to be made in United Spirits for long-term investors. It is going to emerge as a classic blue-chip company which is a must-have in any well-constructed FMCG portfolio. Q: Do you share the concerns that come next year India may not be as much A favourite for investment?
A: It is hard to say when the Chinese market has been pretty depressing and from what I have read, the Chinese A-category market is very retail- oriented and retail investors like all other markets whether India or China or perhaps even America, have gone on strike and have not bought equities. That is the reason for the fall.
Given the fact that it is now at its 2007-lows, I would certainly ask investors to look at China. There are some great quality companies in China. So, it would be a mistake to ignore China. I think yes, there is a lot of state interference, but beyond that there are companies that offer exceptional technology and are available at almost throw-away valuations. I am not only familiar with the broader basket of stocks, but I would not be shocked if China bounces back in 2013. Q: What about politics and policy next year? How much of a hurdle would the event of imminent election be, according to you in your eyes for market performance?
A: It will be a hurdle. I think once elections are announced, the market will be fine. But till then there will speculation. From almost a quarter of century of watching Indian politics and Indian markets is not to let these things rattle you. Democracy will move forward and India with it, maybe in smaller steps than you would like. If you were to be scared out of the market, you better not enter the market in the first place.
I think pain is a part of investing in India or anywhere in the world and investors have to just ride it out. I see nothing catastrophic looming on the horizon that could threaten me to get out of equities- neither valuations, the news nor global events.
So that is just part and parcel of markets. So there is nothing that suggests that because of an election due in a year’s time, the market will see a huge sell-off. Q: A lot of people share your concerns and fears on low retail participation. Do you think that only when the market reaches that 21,000-level will retail participation enter in and causes a bit of a top-out?
A: Retail participation will probably come in when the market has crossed 21,000 which is when the typical laggard would tend to get in. The market, having made a new high, would bring a lot of enthusiasm back into the market, but that is not the market that I am talking about.
If you look at shareholder lists and the amount of d-mat accounts, which numbers close to maybe 2 crore in a country of 120 crore people, it has to change. The country is on the path to become a USD 4-trillion economy, which implies that almost a trillion dollars worth of savings. That savings has to go someplace- it can go into fixed deposits, gold, or into real estate.
And I think if you are going to put it into those sectors, you are probably putting it at the top end of the cycle whereas in equities, the bargains and the yields are great. So at some point, the public will get wise and will start moving into equities and there are only 200-400 good companies in India to invest in  and these companies will not dilute their equity just to satisfy the appetite to buy shares.
So at that time, these 200-400 quality stocks will have to get a higher P/E rating than they conventionally receive. And I think that is going to happen in the cycle. I think that in India, over the to next five-to-seven years, there will be a big retail boom into the stock market.