The bulls are back. The market seems to be taking volatility in its stride, climbing the walls of worry since the past few days. Why are we seeing this kind of optimism on the street?
Sudip Bandyopadhyay: A couple of things: One, the war cloud over West Asia dissipating was good news for the global equity markets and the positive mood which was prevailing in the world markets did percolate back to India as well. So, there was cheer all around. Of course, India gets more enthused when the oil prices start coming down and oil prices where they are is definitely good news for India.
Apart from that, what acted in favour of Indian markets was that Thursday was the monthly F&O expiry day and that led to a lot of short covering in the markets. A cumulation of these factors – general positive sentiment prevailing all over, global oil prices coming down, rupee appreciating, and the short covering seen in the market led to the rally which took Nifty past 25,500.
But the big question on everybody’s mind is that will there be steam ahead for the bulls to surge and is this rally sustainable and how soon will the market see correction?
Sudip Bandyopadhyay: Well, a couple of things I would like to point out very clearly. One, the global markets and Indian markets will continue to remain volatile. The volatility will stem from the tariff-related uncertainties and the future shenanigans around the tariff. We will also have a lot of tension on the geopolitical front.
As you rightly pointed out, temporarily there is a ceasefire, and one cannot rule out a flare up once again. The Ukraine-Russia war is still continuing. There is a lot of stress in different parts of the world. So, yes, the volatility will be there and that volatility will affect global equity markets including India. So, we should be prepared for volatility. We should not assume that the market will be on an absolutely peaceful one-way trajectory.
The second point is that, in spite of volatility, the way the markets have behaved over the last few months, there is a certain amount of resilience and a certain amount of positive bias for the Indian market. So, the mood is definitely positive. Whether we talk about the global investors or the domestic investors, their outlook on India continues to be positive. The flows into the market – be it domestic, mutual fund, or other funds, flow into the market on a continuous basis is significant and that to an extent is leading to this kind of inflow into the market which is sustaining a continuous positive bias for the markets.So, when you talk about these perceived volatilities that we will perhaps see because of the kind of tensions that may emanate out of the global geopolitical setup, but domestically one would believe that due to a good monsoon that could be in store for Indian companies, it is going to be a big positive factor and of course, the onset of the festive season is coming soon. What is your medium-term view in terms of the kind of moves that we are likely to see as far as the Indian markets are concerned? Are you comfortable with the valuations at present?
Sudip Bandyopadhyay: A couple of points that you touched upon are very important. The domestic factors do look good. They are still not very good, but there are hopes of things improving. One is definitely a good monsoon will lead to significant upside in rural consumption which definitely corporate India needs. We will also see the spillover impact of that positive rural consumption on urban and semi-urban India, and this is absolutely critical for us. We are already seeing the capital expenditure promised by the government in the union budget getting implemented and that is absolutely good news. Corporate India has tightened belts. Cost efficiencies have increased significantly. So, we are all waiting for the quarterly numbers or the performance of the corporates to improve significantly from here on.
Now, whether the improvement comes in Q2 or Q3, Q4 we will have to wait and watch and a lot of factors will determine that. The inflation is under control and that is leading to RBI being able to cut interest rates, that is good for growth and good for the corporate performance.
So, overall, we think the groundwork which is being laid at this stage for corporate performance is very positive. Under these circumstances while the valuation even today does look a bit rich in multiple pockets, the opportunity of valuation or the corporate performance catching up with valuation in the near future is definitely there. Having said that, I will also say that the market works in the future. If there is an expectation of good numbers and good performance going forward, markets will start discounting that very-very soon.
So, we have to remember that valuation always moves ahead of actual performance. There is nothing wrong with that. The next point I would like to mention is that there are still pockets in the Indian market where the valuation is attractive. So, if one is coming into the market, there are pockets, there are stocks, there are segments where even now buying looks attractive.
As far as today’s session is concerned, we did see some profit taking in defence stocks with BEL and Mazagon Dock and HAL, they fell in the range of 2% to 3%. Why do you think investors are not looking at defence with a long-term view?
Sudip Bandyopadhyay: Investors always look at defence with a long-term view. I do not think there is any problem with that. When a war starts anywhere in the world and that gets wide publicity, defence stocks all over the world go up. And when the war ends, defence stocks correct to an extent. This is absolutely normal par for the course. So, we should not read too much into that. The moment this war flared up, whether it is the India-Pakistan skirmish or this West Asia conflict, defence stocks went up significantly from where they were and once the war stops, the stocks do correct. There is a saying that you buy defence stocks when there is peace and sell defence stocks when the war starts, that is how you should manage your portfolio for optimum returns.
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