Trouble in Syria: How should you approach Nifty now? 'Invest only below 9,000'

Anuj: I am sure you are watching all the news flow, do you think the market will take it and move on or as we are seeing with the Dow futures as well this could present the first real correction or could provide the trigger for the first real correction of this year?

Sanger: I think the jury is out, it depends on what comes next, right because clearly Russia is a key backer, how does Russia responds, locally Iran is a key backer, how does Iran responds so those are part of the unknowns that we will have to see how they develop. But, clearly the world is becoming a more uncertain place. Trump has threatened action against North Korea, this will probably escalate risks on that front and that creates more risks around South Korea and Japan which are neighbours, so that is another one that is in the mix right now. Syria obviously we don't know how the response will go.

So I would say that these are times when there is really no urgency to buy on the first dip till we understand how the situation will play out but clearly the isolation is out of the window and what we saw today was President Trump talking about the fact that strong America standing up against chemical weapons, spreading its long-term US interest which is what most of us believed. And I think President Trump is now coming around that new point. However, I don't how this will play out but it certainly suggests that isolation at least for now is out of the window.

Sonia: Come in on this, because this strike actually marks the first large scale military operation by Donald Trump, so we really don't know which way things could head. I heard you mention a while back that long-term investors should not rush in and buy this dip. What would your recommendation be to Indian investors sitting so far away from the event? Is this a time to move to some cash, would you rush to buy into some safe haven assets what would you recommend now?

Sanger: Let us look at what is moving today, it may or may not last, but right now gold and oil, as you mentioned earlier are amongst the asset that are seeing flight to those assets. You are also seeing US bonds. So it is kind of a risk off trade. Therefore, I would say that while there is no great reason to sell the market here, I don't think rushing in with both feet at the first drop is a right call because we had obviously the news about RBI unexpectedly raising the repo rate that was slightly negative surprise and now you have oil running.

And if oil keeps going that creates some risk of inflation and we don't know that will play out but that is certainly something that we would be thinking that you could have room to go there. So, I think from an India macroeconomic stand point both from a funds flow and from inflation risk and oil risk there could be a little bit of turbulent ride here so I would wait for more meaningful, attractive entry point before we jump in.

Anuj: For India in particular we are what at 9,200 now; 9,260 actually what would be a good buying zone?

Sanger: If it got below 9,000.

Sonia: Coming back to that point you were making about the RBI policy we also heard a lot of comments on what the RBI plans to do with regards to non-performing assets (NPA) resolution etc. How you read into all of those comments and what would you do with a big chunk of this market like banks?

Sanger: We clearly have a bifurcation in the banking sector, while we get trading rallies in some of the more challenged with NPA banks whether it is public sector undertaking (PSU) banks or some of the more challenged private sector banks. The well run private sector banks have done well and those are clearly in a better position. I think at some point here the NPA cycle is not going to keep getting worse and things will get better. I am not inclined to rush in and buy more challenged banks but I am sure there will be a lot of money to be made at some point. I am just not sure that anything that came out from RBI yesterday or anything that is going on today on the geo-political front makes it particularly compelling to go out because there are plenty of non banking financial companies (NBFCs) and well run banks that we would be buying on pullbacks before we will be wanting to dipping out but there will be a trade. I am just not sure on which day.

Latha: I am intrigued; you are saying you are not going to buy anything until you go below 9,000?

Sanger: We do not buy any index. We buy individual stocks. We have individual stocks where some of the midcaps might see a bigger pullback and if we saw that then we are inclined to buy individual names which we have on our buy list at the right price. So my sense is that a 2-3 percent correction, if this things plays out with a little more negative reaction is possible but it is not necessary. So it might end up happening that you get a modest pullback and the market continues and we do not feel any great compulsion to have to put money to work today. We are looking for good companies at right prices and if it presents itself in this action, we would seize it but I do not see any compulsion that today the market is down 50 points, we have to rush and buy equities on that basis.

Anuj: We have been saying that this market is driven by liquidity but do you think this market is also sensing earnings rebound because that would be the major test of this market?

Sanger: That is absolutely an important thing, right. I mean at the end of the day liquidity is going to drive valuations to probably levels that would make most of us price sensitive and value sensitive buyers maybe it will feel like nosebleed but the reality is that that at the end of the day the earnings recovery is one that keeps getting interrupted. Obviously last quarter somewhat by demonetisation but we think that we are seeing early signs from companies that this quarter and if not this quarter certainly FY18 is shaping up to be a strong earnings recovery or so. See more signposts along the way on that - would be an important factor in driving this market but oil is one wildcard that could be negative in that earnings recovery picture.