With Sensex and Nifty turning negative this year after hitting their lifetime highs less than two months ago, market participants are busy counting losses and readjusting positions in their portfolios.
While the Sensex has lost 2.08% since the beginning of this year, Nifty has seen a 4.75% fall amid heightened market volatility. On August 29, 2018, the Sensex and Nifty hit all-time highs of 38,989 and 11,760, respectively on strong Q1 earnings show, record FII inflows in July and August and rise in global markets.
Since then, the Sensex lost 14% or 5,640 points and Nifty fell 14.71% or 1,730 points in less than two months and investor wealth worth Rs 25.71 lakh crore was wiped out leading to huge losses in their portfolios. In an interaction with Business Today, B Gopkumar, ED and CEO at Reliance Securities talks about the current market situation, future outlook and strategies to minimise losses in a falling market.Why is the market in a tail spin? Is the macro that bad?
The market is facing huge headwinds of tightening of global liquidity. This is resulting in compression of valuations. It is no secret that the global markets were driven by central bankers in the western world where interest rates continued to remain low for a very long period of time. This resulted in money flowing into financial assets worldwide. With rising interest rates, the liquidity is getting squeezed. While this is a global structural challenge, India has its own challenges of rising current account deficit (CAD) and upcoming political uncertainty which the market has started discounting. So, it's no particular surprise that the FIIs have started selling at a higher pace. The macro situation is not really so bad as the markets project them to be, but the appetite for risky assets is on a decline. This phenomenon happens once every 3 or 4 years and this phase also shall pass as domestic liquidity situation is stabilising and macros are looking better with stable currency and crude oil price.
When do you expect the bloodbath to stop in the market?
As I said, it's a challenge of valuation compression. The market will revert to mean valuations of 15/16x one year forward earnings. Sometimes the pendulum swings more but with the Nifty 50 index at 9,800 levels, the valuations will look attractive. Even now there are so many spaces where valuations have become quite attractive.
Investors portfolios have tanked by a minimum 35 per cent and do not have the appetite to take any further pain. What is your advice to investors in this market?
Retail investors many a times do not act in times of falling market. It is very important to realise the market risk during such times. It is painful to exit positions that would have corrected by 50% but it is better to realise that there could be further challenges and more downside. So, I would advise investors to take cognisance of stocks where there are more challenges ahead and churn portfolio to accumulate high quality stocks. Such markets offer excellent entry points to buy high quality stocks which during good times appear very expensive with limited upside.
Mutual funds for the first time in the last couple of years are facing redemption pressure. If MFs also turn sellers - the market will come down further, so should investors stay on the side-line and wait for the dust to settle than trying to catch a falling knife?
It is always difficult to figure the bottom of the market and gauge turning of sentiments. It is very difficult if not impossible to time the markets. Suggest accumulation strategy and keep buying slowly in the fall.
What should be one's strategy in the Indian equity market?
As I said earlier, this is a good market to accumulate quality stocks. And quality is now available at a reasonable price. Strategy should be to focus on quality and avoid traps of looking at cheap stocks which have corrected by 70-80% and appear multi-bagger because they can correct even more.
What are the unforeseen risks for the market?
Political risks are never well understood by the market. Markets want political stability and any instability will lead to a significant spike in market volatility.
What are the positives for the market that could attract investors?
Market liquidity challenges are easing, bond yields have come down, crude is off the highs and the currency is stabilising. Earnings till date have been reasonable and valuations have corrected so there are quite a few positives that can attract long-term investors.
If someone wants to invest Rs 1 to 10 lakh in the market, what strategy should he adopt?
Strategy for all investors is the same as to churn out stocks with earnings risk or business challenges and accumulate quality stocks. Flight to quality is the strategy in this market.