Experts see multi-year bull run; volatility going ahead

The market can sustain the momentum because right now only a few sectors and stocks are doing well, so as and when the other sectors and stocks catch up, it will continue to move higher, says Nilesh Shah of Axis Direct.

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Though it will perhaps see a lot of ups and down along the way. "It will get punctuated by the US debt ceiling, Fed tapering, election results, and so on and so forth, but definitely the broad market has strength and it can catch up," he says. He advises investors to consider equities over gold.
According to him, the country will benefit from rupee correction. Exports will look up. The rural economy will also do well on the back of good monsoon and election spending. Non-farm income is also a significant contributor to the rural economy now, he says.
Trader Atul Suri had 6720 as a target. But when the market visited 5100 in August, he was worried. But the fact that it bounced back so quickly and touched new highs, makes him believe that there is a possibility of something much larger happening. He finds his earlier target of 6720 to be very small now. Suri says, "If this thing pans out, the implications of this are almost about a three year kind of bull market that I see coming ahead."
Sudarshan Sukhani, s2analytics.com, too is bullish on the market. He says this is the time to invest in equities. According to him, it is just the beginning of a multi-year bull market. Below is the verbatim transcript of Nilesh Shah, Atul Suri and Sudarshan Sukhani's interview on CNBC-TV18 Nilesh Shah, Axis Direct Q: After everything that happened on Friday how are you feeling about the markets going into a new year of sorts? Do you think we have got the momentum to move higher?
A: There is a reasonable opportunity for markets to sustain the momentum. Partly it is because of the fact that only few sectors and few stocks have carried markets to this all time high. If you remove sectors such as FMCG, pharmaceutical, technology, cement and automobiles then the rest of the sectors are trading at much discount to their previous high valuation or previous high prices.
So, as the other part of the market starts catching up, hopefully this rally can be sustained. Will this market rally be a straight line? The answer is no. In last Samvat year also we have seen, few months of teezi, few months of mandi, markets will go through that volatile phase. It will get punctuated by the US debt ceiling, Fed tapering, election results, and so on and so forth, but definitely the broad market has strength and it can catch up. Q: Any targets out there? We are talking about a new high on the Nifty almost there today. What kind of market range or targets could you set between this Diwali and the next?
A: It's very difficult to predict a range but let me try to figure out sectors which should do better compared to markets. I think the 3 R's will make a difference. The first theme will be related to rupee. Whole of last 2-3 years we have seen Indian manufacturing industry suffering from an overvalued rupee. The Chinese exports were selling more in India, than Indian manufactured goods, because of the overvaluation of rupee.
Now rupee has corrected and the market has priced in export-related companies, but it has not yet priced in import substitution theme. So, all those manufacturing companies which are getting threatened by Chinese imports or other countries imports will get competitive advantage because of rupee depreciation, they will get operating leverage and that portion of the market should do better compared to the rest of the market.
The second thing is the theme of revival. There are so many companies which are trading at huge gap to fair value and that gap is partly because of high debt burden, delays in project execution, or partly because of local environmental factors.
Now some of these companies will see gap between their market price and fair value narrowing down as they start taking corrective action. So, revival is something which will again outperform the market.
The final theme is related to the rural economy. We have seen fairly a good monsoon which bodes well for kharif as well as rabi crops. We will also see non-farm income moving at a higher pace. At Axis Capital we did a rural yatra where we found out that the non-farm income is now a significant contributor to rural economy and this will probably keep rural economy growing at a pace faster than the urban economy. Election spending will add the icing on the cake for rural economy. So, companies which are engaged in the rural economy should be the outperformer in the market.
So, rupee, import substitution, revival & rural economy - companies related to these sectors should be able to outperform the market in next Samvat. Q: What about the two key competitors for the equity markets – gold that has not really done very well this year and fixed income that has actually been an extremely safe haven for the last few years for a lot of retail investors?
A: On the gold side we have a very strong view that today if you buy gold in Mumbai and try to sell in Dubai you will straight away lose 10 percent. 10 percent import duty is not going to remain forever. Whenever it goes, your value of gold holding will come down.
The second thing is that when you are buying gold in smaller denomination, or when you are buying gold from non reputed jewellers, there could be doubts on the quality, or there could be very high price differentia vis-à-vis what you are getting.
So, when you are buying gold, you are taking the risk of quality. You are taking the risk of price difference and you are taking the risk of import duty coming down. I don't think it is advisable to invest in gold at this stage.
My advise to investors will be that if you see India as a whole, probably we are owning USD 1 trillion worth of gold. Now last year 20 percent was drop in dollar price of gold.
So, effectively we have lost USD 200 billion worth of dollar value of gold which is more than the holding of Indians in Indian equity market.
So, just the loss on your gold portfolio is more than your total holding of equities in India. This kind of under-allocation needs to be corrected and it is the early mover who will take the advantage. So, looking at the portfolio positions I will recommend investors to consider equities rather than gold. Atul Suri, Trader Q: Are you convinced that the blues of August are behind us? The market is set on a new course of its own?
A: It is a continuous process, you cannot write-off anything. For me 5100 in August was a scare, because I have this belief for the last two years that we are in an uptrend and I was expecting that we would get into a new high. I had targets of 6720 etc., but that is the past. When 5100 was visited and most importantly it made a lower low, that really got me worried and then got me concerned, but the beauty is that it has just sharply bounced back and we are at less than a percent from lifetime highs on the Nifty. So that is spectacular. What it does for me is that it really sets up the possibility of something much larger happening.
This 5800 on the Nifty, 2008 top, then we revisited it in 2010, again in 2012, so as a pattern what I call an ascending triangle kind of pattern, if this pans out and if we break out the implications can be very large. The implications can be so large that some of the biggest problems that we have that of segment and market participation, domestic institutions having sell figures, because domestic players are really on the sell side, that could all really change. For me personally this breakout and getting into lifetime highs is very important. So I have my fingers crossed and we are probably at the cusp of something significant. So touchwood and fingers crossed. Q: Is the past back into the future now? Now that we have gotten to 6300, are you revisiting that 6700 target for the Nifty? How important is this in terms of where the market could take us?
A: That target actually seems very small to me. I personally think that if this thing pans out, the implications of this are almost about a three year kind of bull market that I see coming ahead. It may sound iffy whatever, but I personally think that we could go ahead and set very large targets. The beauty is that the participation as I said earlier is low. There is hardly any interest. The positions are not very large, especially from the domestic side. The weak hands are definitely not coming and all these things will really go out to create something larger.
So coming to the earlier point, for me this lifetime high breakout is very, very important and that is because also the way I am seeing the internals of the market. Most important facts have been global because of the kind of flows that are coming in, but internally also the way the sectors have started performing, it is not just a one horse race, you have the move from 5100-6300, you had IT first, then metals got into the act and now most importantly the banks are getting into it. You have seen great performance from PSU banks in the last few days. So if this trend of outperformance in banking continues, I see that the market can really shoot and get into new targets. Sudarshan Sukhani, s2analytics.com Q: Are you feeling optimistic after the events of the last couple of weeks?
A: I would say that this would be a better Diwali – next Samvat, the next year. To that extent I am optimistic. The charts themselves are fairly decent. Lifetime highs are usually bullish which is what we are going and making.
The markets are discounting events which we know nothing about. This is the time to invest in equities and if what I assume is correct then this is just the beginning of a multi-year bull market.