Investors buying anything that is cheap; rally to continue: Pros

The 50-share Nifty today hit a fresh 52-week high touching the 8,970 mark for the first time since September 2016. Experts feel investors are not pouring in money solely going by the fundamentals. Rather, experts say that there are other important factors that have led to this high.
Ajay Srivastava, CEO at Dimensions Consulting, is of the opinion that the rally that led to the 52-week high is purely due to liquidity in the market.

"The market has scaled new highs against all odds," he said. He said the market rally is not done yet and will keep going. Investors are buying anything that looks cheap, he said.Demonetisation, which disrupted the country's cash economy, has forced a slow shift of the unorganised sector to the organised. This is helping increase the organised sector's market share and making people more brand conscious, said Nilesh Shah, MD of Kotak Mahindra AMC.He attributes the ongoing market rally to this shift and is overweight on this theme. He said this shift to the organised will only speed up with the implementation of the goods and services tax.
Shah also remains optimistic, saying that earnings growth in the next fiscal will accelerate compared to the current fiscal.Below is the verbatim transcript of Ajay Srivastava and Nilesh Shah's interview to Sumaira Abidi and Nigel D'Souza on CNBC-TV18. Sumaira: 52-week high for the index, already valuations were not cheap, investors were already using that picky approach, what does one do from here now? Srivastava: It is a great market because against all odds, we are seeing new highs. This is a credible effort to the market and we should all thank the Indian investors who are pouring in money. So one is -- we are assured to see more highs because the kind of money pouring in is much more than what the primary market is expanding by. So you have to keep buying secondary market share. So somebody needs to keep buying shares for somebody else. So it is a great thing as long as you have the liquidity going and where we buy the shares, this change is on to buy anything and everything which looks relatively cheaper. So you saw Reliance one day -- people buying in a binge manner that Reliance is the cheapest stock in the market, you will see same happens with Jaiprakash, you will see same happening across the board. So I think it is not an issue of what fundamentally what is driving the market, it is purely liquidity till the liquidity exceeds the primary market paper, you will see new highs. Nigel: In this recent rally, what is the cash levels you are sitting on as we speak or have you deployed everything? Shah: As a fund house, we have never taken cash call. We remain fully invested across our portfolios. Our cash levels have averaged between 2 percent and 5 percent across different funds but we don’t take cash call. Nigel: Where do you have your highest exposure? Shah: We are benchmark oriented fund houses and today the largest weight in benchmark is banking and financial services. So by definition my exposure is more towards banking and financial services but the right way to evaluate that will be where are we most overweight and across our portfolios, we believe that theme, which is working is shift of market share from unorganised sector to organised sector. There is consciousness towards brand at consumer level, which is pushing deeper market share for organised sector, demonetisation has disturbed the cash economy, the trade channel is getting disrupted and that is benefiting organised sector. Goods and services tax (GST) introduction also will increase the speed at which organised sector will gain market share. Another thing, which is working is that now salaries have to be paid through banking system so your salary and the take home pay has to be explainable, reconcilable. That is going to increase labour cost for unorganised sector, which will benefit organised sector. So across our portfolios, we are overweight the theme of unorganised sectors losing market shares to organised sectors.Nigel: This entire rally has been a domestic fuelled rally, the flows have been very strong. What is your take on that, on the flow picture and also for the second day running or the third day running, we are seeing that the midcaps are doing a relative underperformance so is the end of the midcap party coming and in fact, now we should just focus on largecaps? We have a lot of retail investors out there so they would like to know what you are saying on that? Srivastava: There is no end to the midcap rally because every day you get new candidates. You will find new candidates coming up -- JP was sitting on the sidelines, now JP has joined the party and there are several other stocks tomorrow IRB may come in and then another company may come in. We have a plethora of small and midcaps which are sitting there. The problem with midcap is that more than 60 percent of them is -- results had been poor to ordinary in the last quarter and that is where the danger lies tha when you go into midcap, you will very obvious March quarter and you saw the poster boys of the last IPO Advanced Enzyme etc, you saw the results that came out, pretty bad results that came out. So I think you have to be vary that yes, a midcap theme is playing out. So you would tend to be little cautious in the midcap side and balance up portfolios if you go forward but I would say that as of today as you watch in, you must have a very compelling reason to keep investing in this market. Having said all the positives, it is not a cheap market. So you must find sectors or you must be very sure about why you are buying a particular share. One box which is a little bit easier to buy perhaps could be the public sector undertaking (PSU) block which sooner or later will come on the block. So it could be safer, banking will remain safe block because they will keep taking market share for PSU banks. These two blocks could perhaps be a safer blocks to be in and of course people keep saying IT but IT may be a very contrarion bet but it is a long shot whether IT can do anything great for the market. I think you will stick to industrials and leverage companies, which are going to have a good run with lower interest rates. Watch video for full discussion...