There is global energy crisis, fears about hike crude oil prices. TCS opened 6% in the red and yet Nifty has a new all-time high. How does one make sense of this bull rally?
It is a very welcome rally. We are up about 27% for the year. The last 1,000 points has taken more time than it took to jump from 16,000 to 17,000. That happened in 20 odd sessions and this has taken about 28 sessions. The participants are changing, the baton has got passed on. From 2017 to 2018 media was the outperformer; then came real estate, then auto. Midcaps have started to catch up as well. The leadership of the market has passed on from IT to other segments of the markets. Banks are performing more as a catch up. We have to see whether this will sustain post the big numbers that are coming over the weekend.
After results of TCS came out, we have seen a selloff in IT and that remains a concerns. Overall, there are three big things; first is fundamentals underlying the market. Fundamentals for India are improving we are seeing the resumption indices at highs.
In September there was a little bit of plateauing and we will have to see whether October contributes more. The biggest culprit is of course the auto numbers. The two-wheeler sales are not taking off and the four-wheelers are getting hit by the chip shortage. So, auto is having an impact on our overall business numbers. But fundamentals are pretty strong. Corporate have deleveraged over this last two years. Market leaders have strong balance sheets.
Second would be earnings which look pretty strong. We have seen more upgrades than downgrades over the last quarter and we are expecting a strong earning season this time led by metals, by recovery in banking and oil and gas doing very well. The few real estate that have come out are stellar. Those will be the leading sectors.
The worrisome factor is the valuations.The valuations are not cheap but they are discounting a scenario of strong growth coming in. That way the market is finding it palatable but what we saw with the IT majors and the kind of correction that came in for the sector today, at these levels what happens is any small news can trigger a minor correction of 4%-5% that is what we have to watch out for but otherwise it is a very well positioned market fundamentally and earnings wise.
We were talking to a strategist this morning and he says investors do not care about valuations. Do you think people who are investing at these levels really care about valuations?
Who understands valuations? The retail investor does not understand valuations but I would say they are the smart money. The 3.5 crore SIPs that are being done every month right from March last year. Given the expansion in the trading population, given the expansion in the demat population, there is a big segment which has only seen one-way markets and who think that they are great stock pickers because they have doubled their money over March last year. But that is a global phenomena ad it is not only in the US, it is in China, Korea and eastern Europe as well.
It is the entire crypto currency population all over the world. This gamification of speculation has brought in a fresh segment which is different from the smart retail which is the SIP segment which kept on putting 9,000 crore every month and who are hugely in the money now over the last 16-18 months. But there is a gamification of speculation segment which is looking at profit less prosperity with very welcoming eye.
S, a lot of PE exits are happening, this kind of gamification should normally have stayed in the PE segment, the accredited investor segment, the investors who can bear the losses when the eventual correction comes. But this has become very mainstream now. The PEs have been able to offload their very highly valued profitless companies globally, not only in India. In India, we have few and far between cases, but globally there are trillions of dollars that have been raised. Even in the US profit less technology is a $2 trillion market cap sub-segment.
