In a move welcomed by the equity markets, global investment banking and brokerage firm Morgan Stanley has projected that the Sensex will hit 50,000 points by December 2021. The prediction comes even as the Sensex and the Nifty have reached all-time highs at 43,952 and 12,874 respectively on November 17, 2020.
Morgan Stanley has attributed its forecast on COVID-19 infections stabilising, high-frequency indicators showing signs of recovery, strength of government policy and responses from Indian companies. The markets have shown remarkable recovery from the COVID-19 induced lows of March 2020 to notch record highs.
However, Sanjiv Bhasin, Director at IIFL Securities, has warned investors to take the projections with a pinch of salt and to be wary of sharp corrections. "The stock market has been the best indicator of what pessimism and fear was and now what greed is in a way. Pessimism and obituaries were written across the board by large brokerage houses and economists when we hit seven and a half thousand. And now the same people are painting the picture like the town is being painted red. Take it with a pinch of salt," Bhasin told BOOM.
"You're really nearing a top and you could see a sharper than expected correction. At that time, don't lose sight of the fact that you have to be prepared for volatility which will be the new instrument for some time to come," Bhasin added.
Excerpts from the interview below
Govindraj Ethiraj: The Sensex continues to go on a trajectory where obviously it has not been before. It hit a record of 44,161 today, while the NIFTY hit a lifetime high of 12,934. It ended a little lower 43,952 for the Sensex and 12,874. More importantly, a couple of things have happened. The brokerage house of Morgan Stanley is now projecting a 50,000 Sensex by the end of next year.
So, to understand now what this new era or world means where we are looking at a 50,000 Sensex or almost touching it, I'm joined by Sanjiv Bhasin, Director at IIFL Securities. Sanjiv thank you very much for joining us. So how are you seeing what you're seeing right now in the stock markets?
Sanjiv Bhasin: Staying safe has been the main criteria. But along with that, we've got the best icing on the cake. The stock market has been the best indicator of what pessimism and fear was and now what greed is in a way. So, I think pessimism and obituaries were written across the board by large broking houses, economists when we hit seven and a half thousand. And now the same brand of people is painting the picture like the town is being painted red. So yes, take it with a pinch of salt.
But it tells you that of all asset classes, namely bullion as in gold and silver, fixed incomes as in FDs, bonds and real estate and equity, equity remains the best part given that bond yields are hitting multi-year lows, and this wall of liquidity is going to chase higher-yielding assets with emerging market stocks being the best. So, in the short run, the liquidity is making you feel like you're left out and all fours are being bought. And in the longer run, it means that for the next two-three years, the money printing by central bankers is here to stay.
So, if you had a SIP and you've been doing that, you are being very, very wise, because there is no other asset class which will give returns like equities bought on the side of greed and fear. Fear was overplayed at seven and a half thousand. And now a large part of the greed at almost 13,000.
Govindraj Ethiraj: But Sanjiv if you were to go back to January when we had 40,000 plus levels on the Sensex. Now, between then and now suppose you had not done anything you were invested earlier and you continue to be invested now you've not invested nor have you sold; would things be much different?
Sanjiv Bhasin: Well, the composition has changed. The market breadth before January was very, very, very, very skewed towards few large caps. Now that has changed because with this cost of money following there is a large part of the mid-caps who could go through this crisis and who have emerged as winners. So, you know, mid-caps have done extremely well. In fact, if you see today, it's the 12th day running that the mid cap index is outperforming.
So, I think the breadth and the constitution of stocks has changed. But like you rightly said if you are an investor who has a longer-term horizon and who wants to own equity as an asset class, then you can see no change from January to November because your stocks are or your index or your SIP has done relatively well.
Govindraj Ethiraj: When you say SIP, you mean investing in mutual funds?
Sanjiv Bhasin: Yes, correct. So, just to clarify, an SIP is a systematic investment plan where every month or weak or depending on your horizon, you invest for the longer term. The idea behind it is that you are not trying to time the market. You will never be able to catch the top and bottom, but you are looking for the next two to five years, where equity as an asset class becomes a very, very rich portfolio and it does well and it beats all other asset classes as far as returns. So, that SIP has been a very, very good instrument and it has seen you from seven and a half to 12,000. And now beyond that.
Govindraj Ethiraj: Let's look at these two projections, one is of the Sensex and the other is of the economy. If I look at the Sensex first, you know 50,000 Sensex by next year end which of course, might well we hit much earlier, what's your first reaction to that?
Sanjiv Bhasin: Well take it with a pinch of salt. The same guys were writing the obituaries of the Indian market and calling for targets of five and a half thousand when we hit 7,500. So, it's purely greed and fear. They have a large broking fraternity and investments. And now 50,000 seems all hunky dory. Don't get caught into that web. There will be sharp corrections. The underlying theme tells us that the economy and the reopening is going to be a costly affair. Government is running very low on finances. So, there are a whole host of negatives also to be built in.
But it tells you that if you are a longer-term player, then these moments of despair are actually very, very good times to enlarge your portfolio. So, take it with a pinch of salt that you're not going to hit 50,000 anytime so soon. It will take time, it takes patience. And there will be lot of opportunities where you will lose sight of the upside and look more on the downside. So, all in the game plan of how broking houses work at seven and a half five and a half was visible and at 43,000, 50,000 is very much a call.
Govindraj Ethiraj: So, one of the things that's changed, obviously, is the fact that we have two vaccines on the horizon which we can at least trust more than some of the other vaccines that have also been launched. And therefore, that means normalcy could return. The second thing seems to be that the Indian economy has been more resilient than people thought and therefore is bouncing back and maybe other economies elsewhere in the world are as well.
The third thing is seeming to be again, that the markets which were running ahead of the economy now seem to be also reflecting the fact that the economy is not as bad as it is because in my earlier conversations, the question was about why are the markets doing so well, when the economy isn't? Now the economy seems to be looking better, at least in terms of projections, than the model. So how is this all coming together?
Sanjiv Bhasin: Yeah, so very good point. The good point is that the vaccines are here. Now there is a pinch of speculation, because the amount of money going into research and pharma has never been visible. In our lifetimes, we never knew what COVID is, it's the first time I've heard of it and living with it. And secondly, the vaccine when it comes, Indians by nature are more psychological. They don't care. It was first the lockdown then the reopening. Now you're back to business. So, if you keep your checks and balances, you keep your social distancing, you keep your mask, you're back to business.
I've been attending office for four and a half months without any problem and if my focus is on doing my job, then these things are just a part. So, living with COVID should be the new norm rather than expecting the vaccine to work miracles. There is a lot of cost involved, how fast we can get the efficacy, how fast the distribution. Yes, the Indian consumption story has been very, very, alive and kicking in the sense that Maruti sold 1,80,000 cars, Hero Honda is selling 8,50,000 motorcycles. And everyone thought that we were done and dusted. But I think the rural economy has shown us very, very strong pullback, the crops have been good, distribution has been good, low cost of money, some of the government measures, all that put together has been extremely positive. And like I said, German bond yields are trading at -0.6%. The US bond yield is at 0.5. in history, you've never seen that. So, this money printing is here to stay.
However, like I said, a large part of that is already in the price. Don't chase the new macros because now there is a huge left-out feeling. In these six months, there has been a new brand of millennials called the Robin Hood investors who have ignored the mutual funds or the soothsayers and they have been the ones who are actually laughing their way to the bank. Because old diehards have been waiting for numbers and economy all to fall in place. That is never the perfect scenario. Stock Markets never give you the perfect scenario, neither on the downside either on the upside.
So right now, take it with a pinch of salt but you're really nearing a top and you could see a sharper than expected correction. At that time, don't lose sight of the fact that you have to be prepared for volatility which will be the new instrument for some time to come.
Govindraj Ethiraj: Should one be Robin Hood investor? Should not one not be or should one now stay away?
Sanjiv Bhasin: So, it's all about participation. It's like Shaadi ka laddoo. Jisne khaaya, woh pachtaaya. Jisne nai khaya, woh bhi pachtaaya. So, either you are in the markets, and you're making some money because you are there. There is all this humbug that I'll buy at the bottom and sell at the top, nobody can do that. Only the people who are staying invested are making money. The trading side of the market has picked up a lot of momentum.
So, you should be on either side. If you are following the market, if you are following us, we have been one of the few who have been positive. So, like I said, don't miss the opportunity when you get declined because this is a longer-term bull market and it is here to stay because the sheer weight of liquidity is something I've never seen in my lifetime. And I've been in this market for fairly long time.
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