BQ Conversations: CK Narayan's Rulebook For Generating Alpha
#BQConversations | Dalal Street expert CK Narayan shares technical insights. #BQLive
Transcript
00:00 Thanks for tuning into this conversation.
00:03 It's important to take stock of what some of the most experienced traders are thinking
00:07 about the markets at the current context wherein bond yields in the US are jumping up and US
00:13 markets and the global markets indeed have come off over the last few days.
00:16 Our markets are not in spared either.
00:18 Dr. Sikin Narayan Johnson to put it into perspective.
00:20 Dr. Narayan, thanks so much for taking the time out.
00:24 Thank you for having me.
00:25 Now the pleasure is ours.
00:26 Dr. Narayan, how do you look at the markets?
00:28 I mean, you had mentioned in this note that you write for BQ Prime that there could be
00:32 a period of some bit of choppiness ahead, say for the last week of September.
00:38 It's kind of panned out that way.
00:40 What is it?
00:41 How is what is the latest market action telling you both global and local?
00:44 Well, you know, as we got into September, we were, you know, as a part of a very strong
00:52 uptrend which ran slap into a bit of a resistance.
00:57 And that was one of the reasons why I said that we might get into a consolidation.
01:02 Second point was that I use a lot of time cycles and based on those time cycle studies,
01:07 I found that, you know, the balance of September, let's say, whatever 15, 20 days of September,
01:14 say for the last one week or so, as well as much of October.
01:20 So, totally, you could say some, you know, 35, 45 calendar days.
01:25 I think that period was not looking very bullish in the sense that I had very few days with
01:31 very strong bullish signatures.
01:34 So when that kind of situation shows up on the time cycle charts, then it has been my
01:42 observation that the markets get into a bit of a consolidation and become pretty choppy
01:48 as far as indices are concerned, leading since we were into a very strong uptrend.
01:54 So some amount of pullback was to be expected.
01:56 Once this pullback, I think we'll get into a consolidation, the market will get rather
02:01 boring and will become extremely stock specific.
02:05 So we have seen, say, about three sharp days of decline down with gaps, as it were, in
02:12 both Nifty as well as the Bank Nifty.
02:16 We have seen a lot of stocks getting damaged and that's more because individual traders
02:23 are having positions, long positions in stocks.
02:27 But in indices, I think the majority of the trading is in options.
02:32 So the option movement moves the indices to a limited extent, whereas long positions build
02:39 up to a substantial degree in individual stock futures.
02:43 I think that is getting around and that is why you're seeing a lot of damage in individual
02:48 stock.
02:49 So combined, the two are producing a little bit of, let's say, sentiment depression.
02:56 But I really wouldn't worry about it too much, except for the fact that we are not going
03:03 to have an immediate upside.
03:04 Now, if that is a cause of worry, then I think for the next several weeks, that is going
03:09 to stick with us.
03:10 But as far as the down move is concerned, I'm not overly worried.
03:13 I think very soon we'll hit a support level either by Monday or Tuesday.
03:18 OK, so you do believe that there is a possibility of a sideways market for the next few weeks?
03:27 Yes, I do.
03:28 I most certainly do.
03:31 And the initial portion has been down because we ended a nice strong uptrend.
03:35 So that is not a surprise.
03:38 Got it.
03:39 Now, the other piece, Dr. Narayan, is what happens at the broader end of the spectrum,
03:43 even as the Nifty and the Bank Nifty presumably consolidate, because that had an even sharper
03:47 run up the last three, four months.
03:49 So do we continue to see a bit of a corrective move there?
03:52 Well, I think corrections are part of the deal, right?
03:55 And everybody was waiting for corrections and now that we haven't, now the entire focus
04:00 is when is the correction going to get over?
04:03 That is very, very typical of the market.
04:05 But I do believe, you know, price cycles run their length and the time cycles will run
04:11 their length.
04:13 So I think the market will be in a corrective mode overall, you know, kind of across the
04:18 board.
04:19 But the caveat, if you may want to put it that way, is that come the second week of
04:27 October, we'll also start up on the earning season.
04:31 And once we get up onto the earning season, then it becomes very stock specific.
04:37 Stocks which will surprise the market will be rewarded or they'll be done if the numbers
04:43 are not good.
04:44 So I think till about the 10th of October, we might be in a very range-bound action.
04:51 And post that, we might get into a very stock specific thing.
04:55 But the choppiness of the market will still kind of remain.
05:00 But we'll have enough news flow and analysis flow and reports and all that to keep us all
05:06 busy that the choppiness may not really matter because we are quickly slipping during the
05:12 meat of the choppy time, we are slipping into the earning season.
05:15 So I think that will save the day.
05:18 Last couple of questions.
05:19 One is on pockets which have been hitherto underperformers.
05:22 If we are in a sideways market and if the results show OK, can they do well?
05:26 So for example, results notwithstanding, Dr. Narayan, what do the charts of IT tell you?
05:32 Well, IT was a bit down in the dump because they had dropped about 20-30% across the board.
05:41 So rally there was not anything out of the ordinary.
05:45 But I think the way this hire for longer business which is being now, I think being accepted
05:52 across the US, I don't believe that we will see very good commentary coming out of the
05:58 IT companies.
05:59 And I don't see this rise which is happening in IT as anything of a larger kind.
06:07 So my sense is that if your IT stores go higher for whatever reason, maybe in anticipation
06:15 of results or whatever, I think it will be a good chance to exit from some of the less
06:22 performing items.
06:24 This may also include the leaders.
06:26 I think there are some exceptions which are more in the mid-cap area, your KPITs or your
06:32 Zensark tech or your one or two persistent systems and all of that.
06:38 Depending upon what commentaries come there, more than the numbers.
06:42 I think nobody doubts the numbers.
06:45 And all IT companies are cash rich.
06:47 So they are not going to fall into a heap.
06:49 But if buyers are not going to step up, then they can just drift like they have drifted
06:54 down 30%.
06:55 It will not surprise me at the end of the rally, they drift back again another 15% from
06:59 the height that they reach.
07:00 So I am not bullish on IT.
07:02 Not bullish on IT.
07:03 The other thing, Dr. Narayan, that has confounded a few people is the weakness in private banks,
07:08 relative weakness or in certain cases like HDFC Bank, absolute weakness too.
07:13 Now do the charts indicate downside there?
07:17 Do they indicate consolidation or at some point of time, time cycle wise or otherwise,
07:21 that there could be some bit of an uplift there later on?
07:26 See undoubtedly, the view of the market towards the financials is still very, very bullish.
07:34 HDFC Bank, you know, post the merger, there's been a lot of chit chat that analysts made
07:39 which came and now reports are coming out, etc.
07:43 But then if you take, let's say, a 10-year or a 20-year return from HDFC Bank, that will
07:50 go into some 5000% or some obscene figure like that.
07:56 Given that as a background, I don't see people dumping HDFC Bank, even if the next, you know,
08:01 two, three quarters are not going to be good.
08:03 Because of the pedigree of the bank and because of the way they have, you know, worked at
08:07 it over the past decade or more.
08:10 I think the sense of confidence in HDFC Bank pulling it through is very, very high.
08:15 So, okay, the stock may drop down to some 1400 levels and all that as a part of a reaction.
08:21 The key thing to see is two parts, whether the very large ownership in HDFC Bank, does
08:27 it shift to the other banks?
08:29 Notably, I would think ICICI Bank would be the prime candidate and the trends there currently
08:34 are much better than ICICI Bank.
08:38 So my sense is that yes, some amount of money will go out of HDFC Bank and get into ICICI
08:44 Bank.
08:45 But I think this, you know, the inclusion in the JPM list and all that, and that is
08:57 going to really benefit public sector banks.
09:01 And then the trends in public sector banks stocks have been fantastic and they continue
09:05 to remain patent and they are actually seeking higher prices.
09:10 State Bank has been a bit of a laggard.
09:12 We'll know the reasons for it as we come along.
09:14 But then there are stocks which are picking up very, very well indeed, Canbank, Bank of
09:19 Baroda, you know, stocks like that and even second tier banks like Karur Vaishya and so
09:24 many others to name.
09:26 I think the focus of the market will shift there.
09:31 Everybody has been focused on the private sector bank.
09:34 Why?
09:35 Because there has been such a huge focus in the option based trading in both Bank Nifty
09:41 and Fin Nifty.
09:42 And these private banks are used to move the indices on a weekly basis.
09:48 So there is a lot of additional or ancillary movements which are also associated in the
09:55 private bank.
09:56 But I think fundamental shifts in the PSU banks, which do not have that much weightage
10:00 in Bank Nifty today, but I think that's a matter of time before some of them get better
10:04 weightage and people shift their focus.
10:07 And if a stock from PSU banking or the second tier banking, let's say the other federal
10:13 banks and the likes of that, if they are all showing you promise of going up, whatever
10:19 20, 30, 50, 100%, then I think the market is not going to shy away from them.
10:25 And private banks may go into a long consolidation and things may shift towards the PSU banks.
10:30 So I'm very bullish yet in PSU banks and very selectively in private sector bank.
10:35 I see the bank being the main one.
10:37 Got it.
10:38 Dr. Narayan, always a pleasure talking to you.
10:40 Thank you so much for taking the time out and being with us today.
10:43 Thank you once again for having me.
10:44 The pleasure was ours.
10:45 Viewers, thanks for tuning in.
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