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A 5-7% rally by Diwali cannot be ruled out, says Germinate Investor founder

One reason is that FIIs have stopped relentless selling and are now turning buyers, says Santosh Joseph. In fact, he says as time passes, more and more FIIs may come back and even the volumes and investments may increase.

August 12, 2022 / 11:51 AM IST
Santosh Joseph is the Founder and Managing Partner at Germinate Investor Service LLP.

Santosh Joseph is the Founder and Managing Partner at Germinate Investor Service LLP.

The market has surged 16 percent from its June lows. “Usually, this kind of rally can be prolonged and a 5-7 percent by Diwali cannot be ruled out," says Santosh Joseph, Founder, Germinate Investor Services LLP.

What is interesting is that selling by foreign institutional investors (FIIs) has stopped. Hence, the Founder and Managing Partner of the Bengaluru-based Germinate Investor Services says FII buying, with continuous retail support, can take the market by another 5-7 percent. It is not a big ask. “We may see this rally play out soon," he said.

On the occasion of the 75th Independence Day, the financial services professional, with over 17 years of experience in asset management, banking and insurance, asks retail investors to participate in the India story.

“While the whole world is talking about inflation and recession worries, India is significantly better off on many counts than what the world has been suffering,” he says.

After a 16 percent rally from the June lows, do you still think the market is reasonably valued, given the current microenvironment? Do you see any possibility of a 5-6 percent rally by Diwali?

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The 16 percent rally that we saw from the June lows seems to have garnered a warm response. It is also a kind of a relief rally, because for the last 6-7 months, we have been seeing relentless FII selling and very weak global data.

In fact, in the last 45 days, you are seeing a resumption of FII buying. Also, if we consolidate at these levels or even stay stable for some time, that's not a bad level, considering from where we have recovered.

Also, whether it was the start of the Ukraine-Russia war during early March, or oil prices crossing $100 or the fears of inflation and recession in the US, or the rise in global interest rates, there were many external factors that were having a severe impact on our market.

With many of these factors cooling down or consolidating, we have seen this 16 percent rally.

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Oil prices corrected more than 30% from its recent high. Do you think oil prices have entered a bearish phase? Can prices fall further towards $70 a barrel?

Oil prices have also contributed a lot to external factors. With India being a net importer of oil, the recent 30 percent correction is very good news. Prices are actually steadily and consistently cooling off and their falling to $70-75 a barrel is something that is going to happen soon.

Oil at $110 to $115 a barrel was also not sustainable for a long period of time, considering that we have recession fears and also there was a lot of knee-jerk reaction, especially after the war and its severe impact on supply-chain logistics.

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Many nations have started resuming increased capacities of production.  Many new lines of production have also been included to catch up with the significant drop in oil production. Therefore, increased production and recessionary fears and cooling off of the war and the inflation effect should bring oil prices down to about $70-75 a barrel. It is a very good sign for India.

After looking at the inflows, do you think FIIs now look confident enough about the India story? Will money continue to pour into Indian equities?

Yes, the initial signs of FIIs coming back to India or looking at India is a sign of confidence on two counts. The first is the stoppage of the relentless selling which we saw in the last 6-8 months. Second, not only have they stopped selling, but for the last 6-7 weeks, we are seeing FIIs actually buying in the Indian market.

There is no reason why FIIs will not continue to buy in Indian markets. When you look at it from a global perspective, India seems to be in a favourable and bright spot. Even the currency at the dollar level seems to have made a near-term peak. Inflation is also cooling off.

Keeping these factors in mind, FIIs returning to Indian equities is a strong call. As time passes, we may notice more and more FIIs coming back and even the volumes and amount of buying may increase.

As we are near the end of the June quarter corporate earnings? What are your thoughts? Will the Nifty earnings remain strong in the coming quarters?

So far, as we look at the June quarter earnings, many consumption and discretionary spending companies have come out with really good results.

This shows that while the world is worried about inflation and recession, in India, we have a slightly different story to tell. If the June quarter was an indication of things, maybe in the next one or two quarters, it may even get better and stronger.

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We should stop seeing the whole world through a single lens and start looking at India for its uniqueness, and even individual companies and sectors are progressing with some very good numbers.

What is your advice to retail investors on the occasion of the 75th Independence Day? How can retail investors become independent?

Well, on the occasion of this wonderful 75th Independence Day, I would advise retail investors to participate in the India story. We are one of the most vibrant, diverse, and most well-poised markets in the world. While the whole world is talking about inflation and recession worries, India is significantly better off on many counts than what the world has been suffering.

This is a great boon for retail investors. Irrespective of whether you are a high net worth individuals (HNIs) or retail investors, you have a chance to make your money grow.

To become independent financially, you should seize the India opportunity and make your money grow as our country grows. As our country moves from a fast-developing nation to a developed one, a lot of wealth-creation opportunities will emerge and retail investors have a great chance to participate in the great economic prosperity that will unfold in India during the next 10-15 years.

Are you bullish on commodity consumers now, especially after a correction in prices? What are the pockets looking attractive now?

The commodity business, as we all know, is cyclical. Time and again, many people read the commodity cycle and say it is different this time. However, each time a pattern plays out in the commodity cycle. There is a long period of lull, and then there will be a short and intense period of massive spikes in commodity prices and share prices also rise significantly. Then, there will be a cool-off period, followed by a consolidation period. Again, there will be a lull.

You have to be very clear about your entry and exit in a commodity cycle. You also have to be clear about the external risks, in terms of the way it runs up and the way it goes down. You've seen people miss out on the rally.

We've also seen people overstaying the rally, missing out on the gains that they have captured by just waiting long enough and seeing those returns evaporate. So, you play commodities either in a diversified fund or a diversified pattern where it's a part of your asset allocation play.

If you are going to take a direct shot at commodities, be careful. Understand the cycle of the specific commodity you are playing and know when to get out or have a strict stop-loss or a timeline, saying that we are happy with a certain amount of returns, you've made your money and exit when you can and as early as you can.

Disclaimer: The views and investment tips by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decision.
Sunil Shankar Matkar
first published: Aug 12, 2022 11:51 am
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