Anshul Saigal: Yes, there is negative news flow from West Asia and we have to see this in sequence. Since 2022, geopolitical issues have played out across the globe. But other than temporary moves downward in the market, the markets have been quite resilient. Even in times like this, the markets have been quite resilient in the context of how big the situation is in the West Asian region.
Unless there is something cataclysmic, like a nuclear holocaust or something like that, it looks like the markets are taking all of these geopolitical issues in their own stride. The trend and the prevailing emotion are positive in the markets and as a result, we think markets over the long term will follow earnings trajectory which clearly from recent numbers, as also from commentary from management looks like it is going to be positive. I should say we are in a favourable risk-reward situation. In case this geopolitical event abates, the markets are primed for an up move.
Which sectors do you believe will participate afresh in this market rally as you have been expecting to happen because a lot of sector churning is already underway? In some of the fresh rounds, we are seeing IT making a comeback, life insurance counters doing well. OMCs are holding up. Where do you see the next leg runup for the sector-wise churning?
Anshul Saigal: Sector after sector is seeing tailwinds. We think that the financial space is quite interestingly poised. We in the last year saw an earnings downgrade from the previous year in this sector and also stocks across the board consolidated. But in recent times, price action in that sector has been quite positive, particularly in the private sector banking space. Also, the price action in the PSU banking space seems to be quite interesting.
There are upticks that we have seen over the last two-three months. Also, earnings look quite interesting in that space as well. Earnings seem to have tailwinds. So, banking and finance looks quite interesting. Another theme that we are seeing is that post the GST implementation, we saw a move from the unorganised to organised on the manufacturing side, but very little of that happened on the distribution side.
We see the second leg of that unorganised to organised move happening on the distribution side across sectors. Whether it is metals, pharma or capital goods, we are seeing that on the distribution side there is a move from the unorganised sector to the organised sector and as a result there are huge tailwinds in that space as the numbers are showing. That space has a few listed companies and the price action in those listed companies seems to suggest that this move has legs. We see in the distribution bracket quite a nice tailwind in demand, capital goods and defence.
It is stock specific but in those sectors, we are seeing opportunity in discretionary spending in that space. There is opportunity across the board and one should not trade looking at the next quarter or two but rather invest for the next 5-10 years. India is the best story in the making.
What is your own sense on whether the pain is already done and digested with when it comes to autos and the kind of impact that they are likely to see because of rare earth minerals? Just a day before talking about the global turmoil, Tata Motors cut their JLR guidance for FY26. We have heard Maruti as well go on record. Do you think the damage is in the price and can these stocks be bought now?
Anshul Saigal: Yes, that is the crux of the situation as to whether most of the negativity is in the price. If you look at news flow and alongside that if you see price action, for some of the names that you mentioned like Tata Motors, the news flow was back-ended while the price action was front ended. So, price action was adverse and then the news flow became adverse as things played out on the price.
That clearly tells us that the markets are forward looking and reacting first while considering earnings and then the earnings will follow. Now with price action having been adverse in most players’ cases and also news flow suggesting that things are bad, we believe that from here, earnings will determine price action and earnings in most cases seem to have bottomed out. Also, the volume trajectory for PVs in particular, in the current year is stable to up.
In the case of commercial vehicles, there is an acceleration and given the action on interest rates by RBI, it does look like there are tailwinds for discretionary spends that we can anticipate in the current year. It looks like autos may be in a bottoming out phase. Most of the negativity seems to be in the price and any positive action on both the macro as also the micro of individual companies should lead to positive price action in stock prices. That is how we see this situation.
The other thing I wanted to talk about was BSE and given that there is a change now in the expiry, help us analyse what is going to happen when it comes to market share and volumes on BSE? Do you expect EPS to be hit as well and therefore a derating in the stock as well or at least a knee-jerk reaction for some more days?
Anshul Saigal: If you remember, a similar sort of situation happened on the frontline index in NSE some time back and the exchange witnessed a negative impact on expected earnings. It is quite likely that we will see the same thing here. Also, BSE in particular has seen an uptick on F&O activity and market share. With this particular change, there is likely an expectation that there will be a hit on market share going forward, which in turn could have an impact on earnings as well. Now given how the stock has behaved in the last two-three years and particularly in the last six months with so much expectation being built in, there is very little room for error and this development clearly has the makings of shaking up the stock and so we will have to wait and see. But clearly this is not the best. It is not the best thing to have happened when the price has behaved the way it has.
What do you think is going to act as the trigger for the markets now and do you think soon it will be earning season and that really is the key thing?
Anshul Saigal: When you ask traders about what metrics they follow to understand short-term moves, they will tell you that there is something called the MVP indicator, which is momentum, volume, price. If an uptick on all three parameters is anticipated, then the markets will see an up move going forward.
Also, in the current phase of our markets, we have seen about a 10% move in Nifty and thereafter, there has been some amount of consolidation on the back of mostly geopolitical tensions and also to some extent, the Q4 derating in numbers that we have seen. However, that derating has been tempered around 2% to 3%.
Given this sort of a situation and for the markets to consolidate and not really derail or fall, tells us about the emotion of the market which seems to be on an uptrend. Given that the earnings trajectory may have bottomed out as last year was a weak year and also that geopolitical tensions may be at peak and may have only downside from here both on earnings and also on geopolitical issues, we may have positive triggers going forward.
If any of those two things or both combined play out positively for the markets, these markets will probably move up. The emotion in the markets is clearly to move up from here not so much down.
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