Underperforming sectors catching up now; stick to Nifty’s 4-yr target of 17K: Atul Suri

In fact, one could also look at leadership stocks in the market. While they may not be performing well right now, they will definitely bounce back.

Speaking on the catch-up trend, Suri highlighted that there are several such rallies happening globally as well.

Meanwhile, on oil stocks, he said that the commodity is also playing catch up rally. He expects USD 69-70 level from current ones.

Below is the verbatim transcript of the interview.

Anuj: Our market is starting to underperform a bit or am I nit-picking right now?

A: That depends on which side you look at it. If you look at the index, we have done nothing all of November. Such a feeling of bullishness, we are not even up 1 percent.

Anuj: And rest of the emerging markets are doing well.

A: Yes, but the screen is on fire, stocks specific. So we are in a very interesting phase. This is a big catch up of underdogs. If you look at the market for the last 2-3 months, you notice that sectors that were underperformers for 4-5 years are the best performers. PSU banks, that was the ultimate bearish trade for the last 3-4 years.

The Nifty is up 6 percent in the last two months. PSU bank index is up 30 percent plus. It is a five time outperformance. If you look at the second best performing sector, it is real estate. Again, another sector that has been in a 5-7 year bear market that has been happening. So you are having a big catch up of underdogs and that is visible, not only in sectors, but even in stocks. That is why, the frontline which is represented in the Nifty looks flat. But the screen is saying something else.

But I think this is a very healthy trend because in my whole thesis of a larger bull market, which I see for the next 3-4 years and which is global in nature, it is just not good enough that only the leaders move. There has to be a catch up trade. It is not just that private banks only can make the market. Yes, PSUs have to cap up. Yes, underdogs, yes real estate. So what is actually happening is that the market is broadening out. And that is very important.

So as I said, which end of the market you are in, you will view it that way. At an index level or a frontline level, it has been a flat month. A lot of frontline stocks have not done well. They have hardly performed. But in some spaces, if I look at the screen, the 20 percent kind of group, you will find 10-20 stocks every day. So it is very important in which space of the market you are and what your strategy is.

Latha: I want to play party pooper only because I want your view on this. A bunch of the stocks that have been moving 7-8 percent, Graphites, chemicals, some auto ancillaries, I was looking at the price-earnings ratio (P/E) even forward for FY18, they are all at 50. I just want to read out these two warnings that came out.

OECD yesterday released its bi-annual economic outlook when it actually upped the growth forecast from 3.5 to 3.6 for global growth, but look at the warning that comes with it: Evidence continues to build that financial asset prices are inconsistent with expectations for future growth and the policy stance exacerbating the risks of financial corrections and growth down-drafts. Vulnerabilities appear through a number of channels, volatility measures are low even as the probability of sharp corrections is high, equity prices are high relative to expected growth and discount rates. This is the OECD.

Exactly a month ago or two months back, the Fed said the same thing in the minutes of its meeting. Since the April assessment, vulnerabilities across asset valuation pressures have edged up from notable to elevated as asset prices remain high or have climbed further, risk spreads have narrowed and expected and actual volatility has remained muted. So how should we take this warnings? It keeps coming back.

A: It is going to take a couple of days to figure out what you said. I agree with you that any bull market, as I say, it is a multi-year bull market will not have all good days and good months and you will have different spaces performing. For me, the issue that comes up I that, has the leadership in the market changed? Do I have to dump my private sector banks and get into the PSU banks? Are all the leadership sectors and spaces, something I have to be out and look at a complete turnaround or a churn in my portfolio? The answer that I get is no. The reason is that if you look at something like you see the whole PSU bank trade that happened. What could one have done? It just happened overnight. All the stocks got rerated. One day. And who was holding them? If you were holding them, you would have gone through years of pain. So it is actually more of a relief rally for you. So the question is if I vent out and participate it post event, you will find a lot of stocks are down 8-10 percent. So the issue that comes up is that post that event, is there more buying barring that short trade or the pare trade that got covered which created this thing? I do not see further upmoves happening. In fact I feel that most of these leaders went sideways.

Latha: But that is true only of PSU banks. If you looked at the others, chemicals, graphites, it is climbing.

A: Without mentioning stocks, yes there are excesses. They will always happen in any bull market and specially when the tail wags, you look at the WhatsApp messages and things like that.

Latha: You are not worried about the markets, midcaps in particular?

A: That space will get hurt, but ultimately, I have to consider what is my strategy and stick to that. For me, the though process is has leadership in the market changed? The answer I am getting is no. You are having a relief rally, you are having a catch-up rally, but I do not think the leadership has changed. Just to put it very specifically, will I sell my HDFC Bank and buy a UCO Bank? The answer is no.

Latha: Will you add to realty, for instance?

A: Maybe I am not in it. But the fact is that a lot of the leaders, they are going through a sideways correction and they will re-emerge and you will find that they go to power the market ahead. What is happening is the tail is also catching up which is good in cementing the trend, but in this I find a lot of excesses happening. It is very important to hold your nerves because you always feel like an underperformer when such moves because all stocks around you are up 20 percent or all your stocks are not going to be up 20 percent. So do I jump in? Jump out? Do I do that? The answer to that is clearly for me, no. stick to your strategies, stick to your knitting. A lot of retail investors are getting sucked in. they are selling quality and getting into this because based on what is happening on the screen. But this is definitely a big red tag. So for me, the concern is not the overall market, for the concern is those pockets of people getting sucked into, pure these kind of things. And a lot of unsavoury stocks, stocks which may not deserve what is happening, a lot of stories are being cooked up. So you have to be really careful, stick to quality, stick to leaders. Yes, you will have underperformance for a month or two, but these will ultimately emerge. And God forbid, if there is a larger correction, you know what happens in those spaces. You do not get exits. Stocks fall 50 percent. At least here, you will relatively outperform.

Latha: Find buyers.

A: Yes.

Surabhi: Related question, will it be NBFC still over infrastructure? I am talking next 6-12 months.

A: Difficult to say. Even infra stocks, some have been bottoming out very well. There are some good chart patterns out there. So I would think that there are. As I said, do not get into this thing of getting into a 20 percent stock every day. I see that kind of urgent haste that my stock has to be up. What I buy yesterday should be up 20 percent. It is a big trap. You have to be very careful of that space in the market. If you underperform in periods like this, it is okay. There is no problem because sooner or later, you will catch up.

Anuj: Sorry I am peeping into the sheet and the one thing that stands out for me is bitcoin. Chartically, what is happening there?

A: It is amazing. As I tell myself that either I am going to read in the books about this thing, just like you had the Tulip Mania or things like this or maybe we will have to change the way we function because this currency, a crypto currency kind of scenario can change industry. If you see the implications, if it has acceptability or it can be one of those big text book cases where you see a chart which went vertical and came down. It is interesting.

Anuj: The reason I asked about that is that bull markets know no highs. So, in that case, are we being too cautious about the midcap rally? The fact is that there is too much money chasing stocks. So, in that sense, who knows? Maybe we are cautioning people, but maybe the stocks double, treble from here on.

A: Maybe, yes. In a bull market, there is nothing to tell you that, but the fact is that one has to see sustainable price action. It is not this one pop. Like I mentioned that you see a 20-30 percent pop, you get into it, the question is incrementally what happens?  The next day, five other stocks emerge and those stocks are left hanging. And what happens is people land up selling quality so they think they can make a quick buck. But the fact is that are you incrementally making money? How much are people getting into it? So I feel that the jury is still out. I think it will take time and one has to be cautious. This is a time for actually nerves. This is a time for temperament and this is a time for a certain experience in the market. That is what will hold out.

Latha: But you have no worries about the Nifty, the big boys?

A: Overall, as I said, one does not know, in a month or two months, you will have corrections. But the overall structure is good. In fact this catch-up rally is giving me more confidence because this is not just happening in India. It is happening world over. Let us take a case in point of even other equity markets. Yes, the US is doing something else, but for the last three months, the best performing markets are the emerging markets. And emerging markets were perennial underperformance post 2008. You look at the best performing market is probably Russia, it is up 11 percent. Brazil is up, Hong Kong, the whole Chinese sector is catching up. So you find that the whole catch-up rally is happening not just in India, not just in Indian equities but global equities. It is happening even in commodities.

Surabhi: I was just going to come to that because metals was the big call that you gave us earlier in the year whether you were still as bullish. Also, oil very important. Is there a breakout above USD 65 per barrel?

A: Oil is also a classic catch-up rally. The biggest commodity fall in the last 2-3 years has been oil which almost one-third or one-fourth it went to. But the fact is that you had a 20-25 percent kind of rally in oil.

Latha: So what is the chart showing?

A: I feel that oil would get to USD 69-70, but I do think that the trend has changed and it is in an upswing. People think it will only be in USD 69-70. Yes, maybe it may spend time there, but it can get taken out. Oil may surprise actually on the upside. This consensus feeling that this is just a pop-up and it will come back to its USD 45-50 levels and things like that, I do not think so. I feel that oil is actually taken a leg up. It may now not have that same pace, it may take time, go through corrections, etc. But I feel that oil is heading higher, not just higher, but much higher. It may take time.

Latha: What is the 12-month or 24-month on the Nifty or the Sensex?

A: It is difficult. As I said, I have shared my 4 year target of around 17,000 on the Nifty. I think that is going to be an emerging market led rally, just another thesis I have that you are going to have a very big move in emerging markets, India being a subset of that. So I really continue to hold this kind of view and I feel that as I said, for me the question right now is this whole catch-up trade that is happening and whether it is just a catch-up or is it a reversal.

Anuj: Your Diwali pick has worked really well. NBCC is something you spoke about. Any other stock recommendations?

A: No, no stocks. Only once a year, one stock. It is a bit dangerous and you cannot do it for regulatory reasons also. But it is something which you take with a pinch of salt. It happens, it does not happen sometimes. But I guess more important is to be with the trend. The thesis is be in quality, be in leadership and it will take you through the ride. You try to get into these intermediate bounces and you get sucked into it. Your portfolio gets totally out of whack, you lose balance and when corrections come. If you look at the market from 2003 to 2008, we had a five year bull market, but the number of times people got shaken out, the kind of circuit that we had in 2004 then 2006, I know midcap stocks had halved in 2006.

Surabhi: Those memories are fading because of the fact that we had this steady, beautiful one year rally. The new investors, the new retail investors.

A: Because memories fade, you have markets.

Latha: In this 17,000 on the Nifty, any likely leaders that you can talk about?

A: I think what will happen is that you will keep having cycles and for someone like me, it is very important to realise what is the next big trend or the next big space that is emerging and be in it. So that is what I said.

Latha: So what is the next big that looks like an emerging?

A: I think some media stocks are looking very interesting. I have been looking at the media index. Some media stocks are looking very interesting, the way the chart.

Latha: We just spoke about Zee Entertainment.

A: I feel the media index is looking very interesting. You could say it is a niche play, it has very few stocks. It is not a very big thing, but I guess there are some opportunities and these are things that once they start, they can go on for longer periods of time.