It seems like new highs are pretty much in store. We are practically there?
If you really look at it in terms of participation, it is completely missing so the way I describe the market, the current environment market rallies are correct because the impact cause is on the higher side. If you look at all the three important participants of the market like retail which comes through mutual fund or directly also remains relatively consistent. The flow has been slowed down but it has remained consistent. FIIs have come back, which is very good news. But if you look at another important element the HNIs or the family office, they are still not participating, they are very hesitant. Overall, if you really look at the impact costs remain relatively on higher side. The breadth is also relatively weak and that is the reason you are seeing relatively more wild swings. But given the low leverage positions in the market, the market is obviously very, very light so it has more legs to climb the key levels.What is keeping the HNI and family offices away because if you look at the cluster of stocks at 52 week highs within the NSE 500 or within the Nifty 50 as well, the list is not bad at all?
What is really hurting them is the negative news, which is there, the more you read about the global macro, the concern which is there, whether talking about de-dollarisation or any other thesis, all possible negative news are there definitely the global background is quite sceptical because we track global macro very closely and obviously anybody who is more educated and more inclined to track these markets globally, they get more concerned.
It is very natural phenomena when you get surrounded with too much negativity and you understand the implication of these data points and you are bound to be very cautious. So that is one reason they are very reluctant to participate.
So since we try to capture both legs of the data, we see opportunity also like you look at today also, some of the stocks have corrected sharply since I talked about the impact. Also, sometimes the correction also gets over in a very short duration; sometimes the correction gets over in intraday also, sometimes it gets over in 2-3 days time. So it is not like those corrections are sustaining for a few days or few weeks also. So that is the way I think the market is so dynamic. So if you can take advantage of this situation and play accordingly then still there is some hope. Otherwise a good amount of frustration is there despite we are closer to the 52 weeks high or all time high.
The other observation also is what you said about the fact that there is such less participation in the market also gives you confidence that at some point, the FOMO feeling or the fear of missing out feeling will set in and there will be a point when all these people who are right now sitting on the sidelines will jump into the markets. So suffice to say that at some point this year, perhaps now with interest rate trajectory at least stalling both for the US and for us that we could take out new highs as well purely at an index level too?
I think first people who are reluctant they are watching global markets so unless you see a sharp rally or recovery happening particularly in the US market, which is the mother of all exchanges unless you see a significantly up move, then the FOMO feeling will sink in here and people will chase. Till the time that is not happening people will remain cautious. I think as a house we also believe that it is a risk off phase which started in January 2023 and still continues. There is no sign of any data which show that risk off phase is over. But the good news is that global liquidity has started inching up and as we always talked about the global tightening cycle, irrespective of what market believes has actually peaked out in November or October 2022, which is very, very positive development, which we can talk about. But I think it is a combination which we have to look at so one should not look at the only few data points which suits your mood and then take examples of those names. My only point, which I am trying to highlight is that yes, market is close to all time high, but there are many opportunities in small cap and mid cap space also, certain sector rotation pieces are going around. If you can participate keeping in mind it is a risk off environment, so one should not be very aggressive in terms of buying the high beta names, one should not not be very aggressive in the very smaller names.
So I think that will still take some more time unless breadth remain constructive for a few months, then you will see participation going down to certain levels. Till that time follow a cautious approach, you will get stock specific opportunities.
You suggesting to stay away from high beta names, does it mean an avoid on all the Adani Group of stocks as well?
We do not want to comment on any group specific or stock is specific, the only point which I said since the risk off environment we like to avoid high beta names or leverage corporates. So these are the cautious points which you are to take in the risk off. If it is a risk on environment, these stocks deliver the best result. So if the cycle comes back in terms of risk on environment, we will play through that also but currently I said that it is a bit risk off environment globally. India was very early to give that sign in January 2023 itself. So I would like to be very cautious, that does not mean we are negative. We are definitely cautious and we are playing it safe. So in the current risk off environment, safety is first priority. Liquidity is second priority and then your returns start. So do not try to chase returns in this environment, it can be dangerous.
Given that you have spoken of the risk off phase continuing quite extensively but at the same time saying that there is a lot of opportunity within the broader markets, keeping safety as the utmost priority where is it that you are seeing this opportunity?
If you really look at from a safety perspective, some of the utility companies have done extremely well, of late we have seen FMCG or staple companies have done well. This is a great area of safety. If you really look at in the last two months or one and a half months, pharma has come back, which is another round of safety because it has reached those neglected and beaten down areas which we typically try to look at. So there are certain areas, certain pockets which are attractive. So one has to keep optimising these names and you will get opportunities.
