What do you think went wrong yesterday and what comes next after that?
In the morning it started with a little negative news that the European economies are heading for a second series of virus-induced lockdowns and that is where gradual pressure was building into the market from the FII side as they were selling. Somewhere in the middle of the afternoon, probably a big selling took place and that triggered into midcap stocks where the trader sold the position. They probably ran into some amount of panic and as a result of which they wanted to square out their position which they held in the midcaps. Remember that these midcap positions were created over the last few days with the kind of momentum that the market had provided to them.
They had to run for cover, which is where they ended up selling the midcaps. The kind of sharp fall that we saw in some of the midcaps is quite unprecedented but in a given kind of momentum, probably people will not look at the price and when they have made profits, they would try to exit the position. At the same time, we could find that the people have been taking some amount of leverage into the midcaps and that is where they would run for cover. They would sell the positions and that is what we gathered from the market volatility yesterday.
Did you tell your clients to buy yesterday when these falls in some of the midcap and semi-midcap stocks were about 15-20%?
No. Basically we have been a little bit uncomfortable with the valuations. We have been asking clients to book some profit. In fact, we have been putting across this viewpoint to clients that 30% of your portfolio should be in cash. When we talked last, I mentioned that we would like our clients to stay with at least 30% of their portfolio in cash and book some profits. Honestly, though the price has corrected significantly, the valuations in some of the cases are relatively higher. However, our inclination would be more towards buying into some of the quality frontline stocks where the fall is giving an opportunity to buy into the portfolio. We will wait for the gradual buying opportunity in respective stocks and not across the board.
Do you think that the sentiment will turn a little risk off?
The euphoric mindset could possibly come under check that is one thing which is understood and at the same time we believe that the liquidity in the global market is not going to stop, on the contrary it is going to accelerate with the new stimulus package coming up from the US side.
Obviously every fall would be bought into by some of the global traders. One would probably argue that it is good to buy into quality stocks to play this kind of volatility. I would be more comfortable with the investment position given this volatility than to create the trading portfolio and wait for mark-to-market falls coming into me. We would stay with some of the quality names. Fall in the market gives good opportunity to buy into quality stocks and that is where I think our actions would be.
When you say quality, is it across-the-board or are you focussing on certain sectors — safer names in IT and pharma?
Yes, our preference would be more towards non- cyclicals. The cyclicals is one where we do not hold a great amount of confidence, particularly on the commodity side of the activity. Our focus would be to stay in IT, particularly where we see the average growth coming in at around 10-12% for some of the front line stocks. At the same time, going forward, the opportunity side is becoming bigger because of the digital proliferation which is happening in the global economy. These companies offer better opportunities.
Within the pharma bracket, we find CRAMS and API as relatively better opportunities. A correction in the price could be a better opportunity. Similarly, in the finance space, the retail housing credit in NBFC and the banks is giving us a good amount of confidence. We would be selective in these pockets. The course will not change and the correction in price would offer us further opportunity into the portfolio since we have been sitting on cash.
