The broader markets had started to stage a strong comeback. But on Friday, again they went down. Is this a technical correction?
It is always difficult to have answers to these questions but for the reference sake, I will go back to the corrections that have been there in the past and in hindsight we know that every correction has been an opportunity to buy. However, it looks like that after such a sharp movement over the last one-and-a-half years, maybe the market has topped out, maybe it will not go up further and maybe it will correct.
Even if it does not correct, it will probably become flat, but none of that has happened. As I said, every correction has been a buying opportunity and the market has continued to go up from there. It could partly be a relief, a breather going into the weekend. Let us look afresh from Monday. After such a sharp movement, I do not think one day’s correction can give us a trend either way.
The other trend that we have seen this week is that laggards are staging a comeback.
Every incremental money which comes in the market keeps looking for buying opportunities and that leads to sectoral rotation. That is exactly what has been happening in our market in the current scenario as the market has been going one way up. In fact, the BFSI space has remained an underperformer for the last seven-eight months. At some point, participation had to come.
Similarly ITC played its part on Thursday. Before that, three or four days before that, Reliance played its part for two days and pushed the index up. Telecom weight in the Nifty is very low but that played its part on Thursday and one or two days earlier. On Friday, it was the turn of Kotak Bank to participate. So as incremental money keeps coming in, the market has to keep going up and it starts looking for those sectors or stocks which have not participated.
If we have to think where will the market go from here, assuming the market continues to go up, this is exactly the trend that will continue. This could be the time for BFSI to take the market further up from here.
What is your take on the entire capex cycle pick up? Who do you think would be the beneficiaries and how would you play this entire capex revival theme?
If we look at some of the macro numbers like capital formation or expansion investment contribution to the GDP growth, those macro numbers will still not show as much positivity as the micro numbers are showing. When I say micro numbers, what I mean is if we look at the management commentaries of the last two quarters, quite a lot of companies have announced either capital expansion by greenfield or by brownfield or some debottlenecking. So there is scope for investments and that clearly gives a positive sign.
Some of the sectors which have announced huge capex and capacity expansions include specialty chemicals companies that continue to grow for multiple reasons. We know of China plus one policy followed by different countries and increasing export demand and things like that. The other sectors that announced capital expansion in a huge way are tyre and cement industry.
Now who will be the beneficiaries? The straight beneficiaries will be the capital goods and infrastructure companies as well as the equipment suppliers. All these companies have already participated in the market rise in the last one year but with the market performance and the sectoral performance of capital goods and infra over the last five years, they have been a massive underperformer.
It is time for that sector to come in from the capital goods and infrastructure. We have already seen performance of market leaders like L&T in terms of share prices, partly followed by their current numbers. It has been a big beneficiary and participant in the market. Similarly ABB is the other stock which has been a big beneficiary. These are the beneficiaries of the whole capex phenomenon.
