When you joined the market, did you think Nifty would hit 17,000?
Of course, not precisely on the numbers per se but definitely the broad outlook on the market was that in the long run, the market will continue to do well. While we have confidence and optimism, the market is touching a new high, after two years of pandemic and a huge amount of stimulus. All put together, it is good to see the Sensex at 57,000 and Nifty crossing 17,000. Naturally we have its own rub-off effect in terms of bringing in further optimism in the overall market. No doubt, every market goes through these ups and downs. Whenever the market is touching a new high, we keep saying that the market will form higher new highs and lower lows each year. One of the studies that we have definitely suggests that in the long run, equity market will remain with an uptrend. Amidst all the volatility, the market touching a new high is something one should rejoice in.
How would you look at this movement? Nifty took a long time to move from 15,000 to 16,000, but only one month to reach 17,000. How would you react to this data point? Would the next move also come faster?
In the last one-and-a-half years, the market has given a huge run up thanks to the liquidity and hope and optimism continuing to remain very high. The Government of India and the central bank have taken initiatives which are more supportive from a broad capital market point of view. Companies have been able to manage their balance sheets quite nicely by raising equity money. The general risk appetite from the investing public point of view has also been rising quite continuously, given that the experience of investing in equities has been very good.
Mutual funds also have been playing a very big role. I would assume, having seen such a one-sided move, beyond a point, the market will start looking at the earnings multiples and other factors that will impact the market sentiment such as rising interest rates, inflation and so on. Somewhere, the market has to go through a consolidation phase. On a three-year or five-year cycle, the market has its own natural consolidation phase as well. Therefore one should not get too excited by the new high but should always look at any new high, followed by some correction. As long as investors understand this and stay invested for the long term, we should not worry about it.
In this next leg of the rally, which sectors do you think will contribute to the market up move? Can banks make a comeback going ahead?
Yes, in the last one and a half years, there has been systematic rotation in every sector of the market. The financial sector has not done as much as they should have done and since they carried a large pool of weight in the index. But given the fact that interest rates are low and demand for money is coming back in the form of credit, I would assume it is a question of time for them to participate in the broad market and momentum.
There are also certain basic industries such as the capital goods sector, which has not participated in the last three-four years. Given the government’s mega infra spending plan, we will probably see even that segment of the market doing well.
Lastly, the consumer space has gone through time value correction. So the price has not corrected but they have gone through time value correction in the last one or two years. Returns were nowhere closer to the broad index returns. Therefore such sectors having a time value correction would start going up, not on the basis of the earnings but from a pure valuation angle, they may hope to get recognised.
The IT and the pharma sectors were the top beneficiaries during Covid times. Going ahead, would the momentum in IT and pharma be sustained?
These two sectors have become structurally high growth sectors given the fact that high focus has been brought in both India and globally on IT spending, automation and the new age artificial intelligence model is also picking up. Therefore, the amount of spending that will come towards the technology sector will be very large. This sector will continue to remain a structurally long-term bull market kind of a story.
At the same time, the pharma sector, given that the primary health sector is a high focus area and also with demand in the longer term, is structurally a good sector to be in. But of course, one should keep in mind that on the basis of the recent surprise movements, the pharma sector is bound to see some consolidation as has been seen in the last one year. The whole sector has gone through consolidation and the stock movement has been very selective.
One has to be prepared for such a movement in the sector, keeping in mind that they are fundamentally sound long term sectors to stay invested in.
