Join this rally for short-term: Advent to retail investors

Advent Advisors’ MD, KR Bharat, feels that the current market is largely driven by liquidity than by fundamentals. There is a consensus of a delayed taper of US central bank’s stimulus programme and the probability of breaking previous highs on the Indian indices is high, he says.

Presently, it is a trader’s market and retail investors must adopt this perspective for a short-term, Bharat tells CNBC-TV18. Till now, retail investors have been in midcap and smallcap stocks, which have been beaten down and that is why they seem to have missed the rally, he adds. He advises on sticking to fundamentally rich stocks and staying away from PSU banks.   Also read: Could QE spur deflation, not inflation? Below is the edited transcript of his interview to CNBC-TV18. Q: This market has been a missed-the-bus kind. The Sensex has risen about 3,500 points since its August lows, but not too many retail investors have gotten a chance to participate. What would your advise be to investors at the start of the new year? A: Clearly, there is an abundance of liquidity in the market and the probability that we will sort of break previous highs is very high. The consensus seems to be that there is going to be no tapering certainly in this calendar year and if at all it happens, the earliest is the spring of next year. This holiday is likely to continue for a while. Having said that, the reason the retail investor went away is due to presence midcap and smallcap stocks. They are not even probably at 50 percent of where they were during the previous high. So, the retail investor has taken a bit of a beating as it were before trying to come back. When he comes back, is the retail investor going to put his money into the 20 or 30 stocks that the FIIs are buying like there is no tomorrow or is he going to look at other stocks? This is still very much a trader’s market because this new high is being fueled in the back of liquidity and not necessarily fundamentals. If you want to sort of participate then you have to get on to the buses that are moving. If that can be done then maybe he/she can take a trading perspective and get on to these buses but not from a long-term perspective. The investor could well be in for another beating during the taper. Timing is important and what stocks he puts money into is also important. _PAGEBREAK_ Q: Speaking about liquidity, so far FII inflows have been very strong but in Friday’s trade, we have got a very tepid FII inflow with just about Rs 187 crore. How will you rate that, is that a one-off and otherwise FII inflows are quite strong? Given the high valuation we will see lower inflows from the FIIs into the Indian equity markets? A: The situation is reasonably clear. We are awash in liquidity if you look at what the major Wall Street banks are saying , they are looking at only a 15 percent probability of tapering happening in December of this year. The consensus seems to be that the earliest tapering can happen is going to be in the spring of next year, which means this holiday will continue for some more time and I don’t think we should be looking at one particular data or another to look at what the FIIs are doing. The mood clearly is to put money into the top 20 or 30 liquid stocks and the momentum is clearly with the FIIs and that trend will certainly continue until the end of November. In the past, typically profit booking takes place late November early December. One will then have a lull about a month for the festive season and then the action restarts in January. If our assumption on tapering is correct, which will probably not happen until at least March of next year, then November certainly will be a party month. I suspect the January and February will be as well. Q: You don’t think that this is a start of the bull market that is led by an improvement in fundamentals right? You still believe that this is a liquidity driven tactical rally? A: I just look at the numbers in front of me. The stock market is at an all time high therefore the economy is doing well is not a logic that appeals to me. I look at inflation, fiscal deficit, and growth numbers. Having said that, I do believe that we are ready for a long maybe a two-three years secular bull market after all that we have seen for the last few years but this is not it. It is a liquidity led rally, which will correct if and when tapering happens. Then the long-term rally will have to be backed by fundamentals. If and when we get our act together, which I see happening six-twelve months from now is when I see a secular bull run.