#Nifty dips below 19,500. Only six stocks on the index trade in the green.
Complete Circle's Gurmeet Chadha talks about the market fundamentals with Hiral Dadia. #BQLive #BQMarkets
Complete Circle's Gurmeet Chadha talks about the market fundamentals with Hiral Dadia. #BQLive #BQMarkets
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00:00 Hello and welcome to BQ Primer.
00:02 Very good afternoon to all viewers.
00:03 I'm Heer Amdadia.
00:04 Clearly, the selling pressure, the market set off has trickled in today's session and
00:10 we are seeing an end below the 19,300 mark.
00:14 Let's welcome in Gurmeet Chadha to understand what is causing this market set off in today's
00:19 session and what could be the way forward.
00:21 Gurmeet, good afternoon and welcome to the show.
00:25 Thank you.
00:26 Thank you for having me.
00:27 Gurmeet, what's the sense that you pick up right now because selling has intensified
00:32 today specifically with regards to broader markets.
00:35 And if you see Nifty as well, in the last, I think, four to five sessions, we've lost
00:39 almost 450 points.
00:40 What is it that you're picking up so far?
00:41 I think some correction was due in the sense that the global environment has been volatile.
00:52 The US 10-year has crossed 5% for the first time since 2007.
00:59 And typically that leads to risk off across emerging markets.
01:04 We didn't see much impact initially because I think the outlook was being matched in terms
01:11 of input.
01:12 I think we have to see the alpha number today.
01:13 It looks like basket selling towards the end.
01:14 Also, I think there were some pockets.
01:15 If you see markets, it's not that it's a, it's a C-shaped market.
01:16 But spaces which are of high valuation is where probably more money is getting taken
01:28 off the table.
01:29 These are typically small cap counters where we've seen a very, very strong runner.
01:32 And I think these remind you that this is a double-edged sword.
01:38 If you make the portfolio too aggressive, there will be days like this, we can shave
01:43 off just 10%, 5-10% in a single day from a single stock.
01:48 So need to be more balanced.
01:50 I don't see any broader concern, any structural concern with India as such.
01:54 But you just need to be a little more watchful in terms of how this macro environment pans
01:59 out.
02:00 Right.
02:01 For me, just to add to the 10-year bond yield spike as well, how do you think that the Indian
02:06 markets are taking the Israel-Hamas war and the geopolitical climate number one?
02:12 And that's from a global perspective.
02:14 And then we will talk about the domestic as well.
02:17 How do you look at this?
02:18 And is big money allocation actually moving to risk-free assets from here on because of
02:24 that?
02:25 It's really difficult to comment on geopolitical things.
02:30 We had the same situation with the Russia-Ukraine war exactly a year and a half back.
02:37 So far, I think the world leaders are trying to douse the fire.
02:41 I think everybody's on an overdrive to ensure that it doesn't spread.
02:44 But military conflicts being military conflicts, you can't stay.
02:48 My own sense is that it should get contained.
02:54 The reason being that all the economies globally are not in great economic shape, including
03:00 the Western superpowers.
03:01 Hopefully, I think in the interest of everyone, in the interest of humanity, this should not
03:07 spread.
03:08 And secondly, I think for India, two variables need to watch out for.
03:11 One, obviously, is the spike in the 10-year bonds.
03:14 Second is any spike in commodity, any supply-line disruption.
03:17 So that creates impact.
03:18 As far as India is concerned, I don't see any structure which you are-- we are in a
03:23 perfect Goldilocks economy.
03:24 Our IP numbers are upwards of 10%.
03:25 CPIs are about 5%.
03:26 So we are not too hot, not too cold, 6.5% to 7% growth.
03:27 And I think we have a good Q3 with private consumption picking up.
03:36 So in the past, whenever it's been-- a fall has been due to non-India reasons.
03:41 It's always been-- I would still not call it a fall.
03:43 It's a monthly movement.
03:45 But any volatility due to external environment, I think, is an opportunity for investors to
03:51 learn of equity.
03:52 But how are you seeing from a domestic perspective?
03:56 I understand you're saying that, yes, we are pretty strong as compared to the others.
04:01 But the earning season has not been very strong so far.
04:04 And that's the consensus view that we have been picking up so far.
04:08 And secondly, how do you think that the markets are taking the upcoming state elections as
04:13 well?
04:14 Do you think there is some bit of nervousness about it?
04:15 I think earnings have been a mixed bag.
04:16 I think pockets where earnings have been good, market has been rewarding it.
04:17 So even in IT, if you see, market wasn't too disappointed with HCI.
04:18 It was more disappointed with Infosys and some of the others.
04:19 Similarly, in banks, I don't see-- I see my colleagues-- there's a lot of interest
04:20 in banks.
04:21 I see a lot of interest in banks.
04:22 I see a lot of interest in banks.
04:23 I see a lot of interest in banks.
04:24 And I think that's a good thing.
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07:49 Not really.
07:50 Not really.
07:51 If you see, for example, this bond inflows I'm talking about is more because of Indian
07:54 government bond getting included in the JP Morgan index.
07:57 You probably see the RKS Bloomberg index also.
08:00 And these are passive flows.
08:01 So, you can't evenтАж
08:03 And the active fund managers will follow.
08:05 Also, FI ownership of India, for example, if you see it come down from 23-24% at the
08:12 peak in 2021 to about roughly about 17%.
08:16 So, the lowest FI ownership has been about 16% in 2008.
08:21 So, in terms of pure ownership percentage of 500 companies, you are at probably a 10-year
08:26 low.
08:27 So, they haven't been really buying you for us.
08:28 In fact, I think the overall output will be in excess of $30 billion.
08:31 So, I don't see that intensifying and we have strong domestic flows.
08:35 But as I said, you've got to be careful in terms of what you pay.
08:38 I mean, you can have a period with sharp volatility.
08:41 So, I think there are a few pockets where earnings are going to be good.
08:45 So, for example, I think auto is looking very good and there was a strong festive season,
08:49 wedding season ahead.
08:50 I think there is some comeback in the rural parts of the economy with state elections,
08:54 MSP increases, the government doing more property cash transfers, etc.
08:58 That part of the economy hasn't done well.
09:00 Also, the old economy stocks, the cement, the capital goods, the utilities, I think
09:06 that's where you have valuation comfort and you have strong earnings visibility.
09:09 So, be where the earnings are and be where the valuations are.
09:13 Right.
09:15 And then overall, ahead of elections as well, do you think, you know, cab goods or, you
09:20 know, infrastructure companies could be playing out as well in a positive way?
09:26 Again, selectively, because if you see, for example, L&P, it's a big beneficiary from
09:32 Middle East, moment oil crosses $90, you start getting orders.
09:36 They got a $3.8 billion order from Jafra field of Aramco.
09:41 And Saudi has expressed its, you know, desire to be less dependent on fossil fuels by 2030.
09:47 So, it's a big inflow.
09:48 There was some concern that, you know, the orders will dry up as we approach elections.
09:52 But we have seen that, if you see the commentary of L&P, they said a third of the orders now
09:56 is coming from the private sector.
09:57 So, I believe we are in the beginning of an investment cycle with now private sector probably
10:02 in few pockets starting in the future.
10:04 Capacity utilization is upwards of 75%.
10:07 But as I said, you certainly have seen stocks go up just because of the order book, you
10:11 know, X companies receive order, the stock goes up.
10:14 So, orders will take time to get executed.
10:16 So, be careful there as well, right?
10:18 Do not start discounting 20, 30, 20, 20, which we have a tendency to do.
10:24 Okay.
10:25 And overall, you know, you've mentioned about, yes, get into sectors which could be beneficiaries
10:32 of the festive season, selective stock picking.
10:34 You're talking about infrastructure, cap goods, etc.
10:37 What would your, you know, recommendation be specifically with sectors like real estate,
10:43 right?
10:44 The kind of run up that we've seen with real estate and the profit booking now that has
10:48 started to come in.
10:49 Is that something as a, you know, as a step that an investor should follow, book profits
10:56 with sectors which have run up?
10:58 I'm pretty constructive on real estate.
11:02 So, for example, if you see DLF, which is not, yeah, again, geography specific, the
11:07 high was 1200 in the last quarter of 2007-08.
11:10 It's still probably less than half of that.
11:13 I think anybody which is getting benefited to the upper end, you know, the mid luxury
11:19 and the luxury segment is likely to better.
11:21 Their office portfolio also is doing very, very well.
11:23 Good occupancy, very steady rent of yields as well.
11:26 I'm more constructive on home improvement than just reality.
11:31 I think if you see, so there is obviously new houses being sold.
11:34 There's a trend of more spending on existing houses.
11:37 So we like the cable and wires makers, the tie makers, the pipe makers, sanitary brewers.
11:42 I think this is a more structural trend.
11:44 And I made this point earlier that this is a housing led KPICS.
11:47 I think the housing demand is pretty strong.
11:49 At the lower end, there is government support in terms of Pradhan Mantri, Avasthu.
11:53 You can play some of the, you know, the home finance, niche home finance names like Home
12:00 First, etc.
12:01 So pretty constructive on this space.
12:02 I think there is a secularity of long term earnings here.
12:06 So it's good to probably have a basket and have a combination of cement, sanitary ware,
12:10 tie, cable, wires, appliances.
12:12 Right.
12:15 So Gurmeet, very lastly, which are the sectors that you would say are best to avoid at this
12:19 current point in time?
12:20 I personally think it's completely bottom up.
12:25 I don't see, as I said, you have good performing, bad performing banks, good performing, bad
12:31 performing IT companies.
12:32 This is a market where you have to probably be more bottom up.
12:36 But watch space in general, I think we're seeing also this IPOs in microcap space, in
12:43 the Nifty Junior index, a lot of euphoria in small and microcaps, a lot of companies with
12:49 penny stocks going up.
12:51 Some of the new age companies have done well, like BTM, Zomato, etc.
12:55 But all new age companies probably will take time to get out of the bush.
12:59 So just be careful in terms of what is fashionable.
13:02 I think right now what is fashionable is defense, railway, just going after the order book,
13:08 X companies receiving X orders.
13:10 IT was most fashionable in 2022.
13:12 Pharma was the darling in 2021.
13:14 Especially chemicals was the darling in 2021.
13:17 All fashionable trades lead to large losses.
13:20 So just be careful, don't chase the fact.
13:22 Right, I think stock picking, sectors picking and being absolutely specific with what you
13:29 pick is going to be crucial as well.
13:31 Thank you Gurmeet so much for joining us on the show and sharing the view.
13:34 So clearly, this is a one-off set of so far that we have seen.
13:38 But if this intensifies, then that would warrant another chat as well to understand where we
13:43 are headed from here on, because multiple factors that we have been talking about as
13:47 well that could be impacting markets so far.
13:51 And the key ones being the Israel-Hamas war that we have been talking about along with
13:56 the geopolitical climate.
13:57 The US 10-year bond yields that have spiked past the 5% mark.
14:01 They have come off slightly from the 5% mark, but still that is a number that we have been
14:06 tracking.
14:07 Because of which, there could be big money allocation that could be moving to risk-free
14:12 assets as well.
14:13 So a churn from equity to the risk-free assets is something that could be eyed.
14:18 Earnings from an Indian market perspective have absolutely been a mixed bag.
14:22 So it's not a very strong earning season that we have seen so far.
14:26 And lastly, the upcoming state elections as well.
14:29 That probably could cause some bit of a nervousness as well.
14:33 So these have been factors that we will keep a close eye on and give you regular updates
14:37 from here on to understand whether this is something that could continue or not.
14:41 Because clearly, there is some bit of value that is emerging with regards to where large
14:46 caps and benchmarks go from a valuation perspective.
14:49 But if you see in terms of broader markets, clearly, they have been expensive.
14:53 Yes, there is a sell-off that has started.
14:56 And this is not the first time.
14:57 A couple of weeks ago as well, we did see some bit of a sell-off that started in the
15:00 broader markets.
15:01 But that was curtailed.
15:02 Now, even if it starts, there is a possibility it could be absolutely stock-specific, might
15:07 not be sector-specific.
15:08 And there could be some amount of profit booking that could come in in terms of sectors that
15:13 have really run up.
15:14 So a churn within a sector is also a possibility or a churn in between sectors is another possibility
15:21 that we could be seeing as well.
15:22 So lots could be in store for the Indian markets from here on.
15:26 That's all that we have on this session.
15:27 Thanks for watching.
15:28 And lots more lined up on the other side.
15:29 Please stay tuned to BT Prime.
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