Sensex, Nifty Close At Record Highs: Key Sectors You Can Invest In

BOOM spoke to Amisha Vora and Ambareesh Baliga to understand why the markets have risen and how investors should invest.

The Indian markets recorded all-time highs in India on the back of the US Elections and witnessed a 3,000-point increase over the last week. On Tuesday, the Sensex reached an all-time high of 43,024 while the NIFTY rose to 12,564.

While initially kept strong by the likelihood of a Donald Trump victory, the markets continued to grow even when the election results swung in Joe Biden's favour. This, despite the global economy being in poor shape, has been witnessed in stock markets around the world.

Experts have reasoned that the markets were kept strong by the US Federal Reserve System maintaining their monetary policy while the expectation of emerging markets to make an economic recovery following the pandemic has resulted in a very large flow of money.

According to independent market analyst Ambareesh Baliga, the increased capital flow can be due to people investing more in the stock market during the pandemic. "Because the people were sitting at home with nothing much to do, they had enough money in the account and the only activity which was there was the stock markets. And if you look at the numbers, there are close to about 60 lakh new investors. Even if you assume one lakh rupees per person investing in the market, it works up to about 60-70,000 crores," Baliga said.

Amisha Vora, Joint Managing Director at Prabhudas Lilladher, opined that the increased revenue flow coupled with the V-shaped economic recovery will ensure that the market continues to grow steadily. Vora and Baliga both believe that investing in banking and insurance sectors will be profitable in the foreseeable future.

"This quarter will be critical to watch, but some of the private banks with very strong subsidiaries into insurance and other businesses could be very well poised as they are all very well capitalized to harness growth over the next two to five years," Vora said.

Baliga advised investors to include companies in the banking, financial services and insurance sector in their portfolios but cautioned against going overboard with their investments. While Vora also recommended BFSI stocks, she believed that sectors which will benefit from PLI (production-linked incentive) schemes might show good returns.

Excerpts of the interview follow

Govindraj Ethiraj: First it was an expectation of a likely Trump win which kept the market strong and steady. Then it was indifference. The market said that we don't care whether it's Biden or Trump. And now it's Biden. And the markets continue to soar, not just in India, where we've seen almost a 3000-point rise in a week's time, but globally, where markets are continuing to be strong. And the index here in Mumbai rose about 704 points to end at an all-time high of 42,597, after hitting about 42,645. The NIFTY hit to 12,461, the NIFTY 50 companies that is.

So overall, the trend is very, very bullish, which is also a little contrast to what's been happening economically, not just in India and world over, as you know, there is a pandemic going on economies have contracted or actually collapsed, and quite substantially. And that, as we all know, now for a while has not really made a difference to the markets, which have been roaring back up since the month of March. So, the question now is, given that there are these new trends, which is a Joe Biden victory, or Joe Biden President Elect position in the United States, and a lot of money flowing in, why is it happening in India? And what does it really mean going forward?

To discuss that I am joined by two well-known capital market veterans Amisha Vora, Joint Managing Director at Prabhudas Lilladher and Ambareesh Baliga, an independent market analyst. Thank you both for joining me. Amisha, let me start with you. So, what's going on?

Amisha Vora: So, I think it was very clear. Fed (US Federal Reserve System) made its intentions prior to elections also clear that this monetary policy, regime which we are into, it's lasting till 2022-23. And at every occasion where we need, as a global economy, and particularly US economy, they are there standing and watching and ready to act. So, one thing was clear that this easy money circulation was likely to continue and generally Fed is also supported by all the large global central banks.

I think one very clearly is that impact. Second impact of course, is developed market to emerging market flow, which has been happening both because of the dollar weakness to some extent, because of the very large flow of money that they have created. And of course, emerging markets as a set also had suffered a lot and are supposed to bounce back from economic perspective. So, both these put together the underlying trend has remained safe. The moment uncertainty got over markets are seeing very huge flows coming in.

Govindraj Ethiraj: Ambareesh, how are you seeing it and what's different this time?

Ambareesh Baliga: This time, I think the major difference I would say in the last seven-eight months has been the retail flow. Because the people were sitting at home with nothing much to do. They had enough money in the account and the only activity which was there was there was the stock markets. And if you look at the numbers, there are close to about 60 lakhs as of October, and now maybe slightly more than that, 60 lakh new investors will come in and what more can they ask? Because from the time they start investing, they will be making money. So, this could be beginner's luck for them, but still, since they made money, there is a lot more confidence and because of which funds are being employed by them. And I mean, even if you assume one lakh rupees per person investing in the market, it works up to about 60-70,000 crores. Most of them have in fact invested more.

So, just imagine the amount of liquidity which is coming only from the retail investors. And to top it all, I mean, we have had FIIs also investing. Looking at the macro numbers, they have been improving no doubt month on month. I mean, look at the GST figures, that's improving. When we're talking of the earnings, a lot of analysts were sceptical whether the earnings would really pick up so fast or not. And again, Q2 earnings also have been better than expectation. So far so good. And because of which we are in fact seeing, I mean these markets rally. Now if you ask me as to till where it will move up. It's quite difficult to say. But whatever said and done.

If you look at the broader picture, I think clearly the bigger boys are becoming bigger and the smaller and the mid-sized ones are actually suffering which we may not be able to see that in the markets because the markets, we normally look at the bigger companies. But I think the problem is basically with the smaller guys. And if the economy has to improve overall on a sustained basis in the long term, I think everyone has to be taken together, you cannot grow only with the larger guys.

Govindraj Ethiraj: So, the monopolization of companies or stocks is now a very, very well entrenched trend. So, let me come back to you Amisha. Before the pandemic and talking about March, we were obviously doing better as an economy and companies were also in good shape and the larger base of companies as well. And yet the indices were much lower than what they are today. So how does one explain that?

Amisha Vora: Pre pandemic, if you ask me, frankly, the economy growth was slowing down anyways. During 2019, also, but the early signs of recovery were there in the rural economy. During pandemic, what happened is, while manufacturing got impacted, demand got disrupted to a great extent, the rural economy strength increased and continued to be very good. That got added by this continuous reduction even domestically in interest rate. I think, in terms of a new car purchase interest rate, or a new house purchase interest rate, or anything that you want to buy, the interest rates are at the lowest for over more than a decade.

So, I think the consumption is likely to bounce back. And the most critical part which has happened is, with this low interest rate, real estate prices having gone down for almost last 10 years if I remember right. And during that period, the income levels which have gradually kept going up, the equation on housing front was almost very well set and work from whom culture has now given the last fillip for housing demand to come back. And typically, when a housing demand comes back, the multiplier impact in the economy is too good, too huge and too large. And I think we just entered that phase, if we see in last two, three months. So economically, also, we are much better placed then what we were pre-COVID. But for me, title impact of hard impact of COVID, which happened over the last three, four months.

Govindraj Ethiraj: Ambareesh mentioned Amisha, about the 60-70,000 crores could that potentially has come in from retail investors who are a fresh class of retail investors. You talked about the institutional flows because of the regime of easy money. So, what's your sense? How are these two forces balancing out.

Amisha Vora: So, the retail flows even globally and particularly in US also had been very good. But my point of view here is that till sometime back, we were seeing that the flows are very good, and the economy is going nowhere. Now, it appears that despite the moderate number of packages which came to support during COVID, economy from debates between W shaped, L shaped, U shape, whatever shape recovery seems to be almost a V shaped recovery. And the flow of money globally continues to be easy.

These two things put together, makes a very good recipe for a sustained run, both in economy and markets. Markets, one should definitely know that are volatile animals, so some corrections here in there are never ruled out. But on a medium-term basis, the markets are also in fine fettle.

Govindraj Ethiraj: Ambareesh, what's happening in the big indices, which is the Sensex and the NIFTY, and what is happening beyond that maybe people are either noticing or not noticing?

Ambareesh Baliga: No, in fact, till 2020, the last two years was basically the large caps which are moving, mid-caps were really getting hammered. But then I would say in the last six-seven months, it's been a decent play between the large caps and the mid-caps. And quite a few of these mid-caps have also run up quite well. I would say it was decently well spread. And part of that could also be because of the number of retail investors who came in. Most of them look at the small and mid-caps and that's what they buy. And that could also be one of the reasons why these stocks have performed.

Govindraj Ethiraj: Do you feel that retail investors are following the herd, so to speak like they would in any runaway bull market?

Ambareesh Baliga: Absolutely. Because I don't think most of them would be doing too much of a research to find out whether the stock is good or the other stock is good. The way that trips are flying over the last couple of months, clearly, at least in that space, I see a bubble building up. And normally liquidity leads to a sort of a bubble. The question is how much larger can that bubble become? I don't have an idea. It can become larger than what it is today.

Govindraj Ethiraj: We're at 42,597 and 50,000 used to be a distant target. That could also mean that people are going to start jumping and thus suffer when maybe things turn.

Amisha Vora: Frankly, we should not forget that we were in the midst of the COVID. And the whole businesses were down and shut. That's the time when also retail started pouring in money. So, it is hard to underestimate their savviness though, yes, they don't do very detailed research. But if you also see, the recovery had been in very large caps because large caps were available at decadal-low. And then of course, it is been spreading a bit into mid-caps.

Now with SEBI coming up with this flexi-cap schemes, I think that will also give more fillip for this recovery to spread across from large cap to mid-cap and small cap because there were a lot of constraint in buying small cap or mid-caps, which will get reduced. And generally, when the interest rate regime is very low, it is the mid cap and small cap which give disproportionate return, despite the fact that because of disruption, that is digital disruption, the larger the player are becoming larger. I still feel that the better place within the mid cap small cap during this regime will give disproportionate data.

Govindraj Ethiraj: What could push the market down?

Amisha Vora: Market needs a little reason to push it down. But for example, a very low package in US. The second package which one is expecting, or because the house is likely divided some issue over there. The second, we are also going to see some change in regime in terms of policies, whether it is in text or trading perspective from US. And third is a very strong second wave, globally disrupting the economic outlook again. Some of these things are geopolitical, I think and disrupt, and bring in a little more volatility or correction in the markets.

Ambareesh Baliga: Quite difficult to pinpoint exactly what pressure could in fact push it down. For all you know, it could be could be a butterfly effect. Because I mean, it could be a small move somewhere, which can have a possibly a cascading effect across the globe. So, you never know as to what a small thing can actually kick off a larger sort of effect. You never know that. So, it could start off with a small geopolitical issue. It could be something happening in US, you never know.

But one thing, what I would like to talk about is the sort of demand which we have seen in the last three months. For all you know, it could be the pent-up demand, along with the festive season demand, which is really showing a huge set of numbers now. Unless we really see those numbers continuing beyond December, I would still be a bit sceptical about the sort of demand flow. So, I would possibly wait till December to see if the similar sort of a demand thing continues. If that continues. Yes, I think I still say that the economy would get back on track and it is sustainable.

Govindraj Ethiraj: What should investors do now? And how can they protect themselves to some extent? If they want to take bets, what should they be doing?

Ambareesh Baliga: In fact, even now, I think the safe bets would be on the consumer companies, and especially the BFSI space, the banks in the financial services, I will still be a bit cautious, a bit sceptical at this point of time. But overall, what I've been telling my clients is that, think of the COVID days and see as to where we are today. If you're making a decent amount of money, book out, partially get into cash to a certain extent, because we don't know as to whether these good days will actually last beyond the next one and a half, two months, and whenever we see a crack, it could possibly be a deep one, because even in the past six, seven months, whenever we have seen a correction, the correction has been decently steep.

Amisha Vora: So, I feel that this entire COVID hum, the financial sector, and our economy seems to have managed well particularly looking from the credit quality perspective as we see now. This quarter will be critical to watch, but some of the private banks with very strong subsidiaries into insurance and other businesses could be very well poised as they are all very well capitalized to harness growth over the next two to five years. So, those will be good pockets. Insurance as a sector continues to be under penetrated in India with very large opportunity. So, that continues to be an interesting space. We can continue to choose a market leader within each of these spaces, for example, ICICI Bank or HDFC life insurance continue to be looking very interesting.

And beyond that, I feel economic cyclical, both in terms of, if not direct auto, then auto ancillary also is a very good space. And last, but not the least, the third leg or fourth leg of the economy, which should start firing apart from agri-rural, real estate and consumer, is the PLI related schemes and its rollout and growth. So, a few within that sector, which are into manufacturing, also could be interesting play. So GMM Pfaudler, it's not under PLI scheme as such, but they work behind the pharma-chemical boom that we are expecting and it's underway. So, supplying to them and have a client list who's waiting to get supplied from GMM could be a very good play to write this entire cycle.

Govindraj Ethiraj: So, consumers are consuming consumer companies, including fast moving consumer goods, banking, particularly the private banks, banking conglomerates who have profitable subsidiaries, and insurance companies in the under penetrated insurance sector in general. These are areas to watch out for. And obviously, keeping in mind that December is maybe a waypoint where we should be trying to see what happens and whether the party so as to speak continues. We're, of course, just remind everyone at our peak in the Indian markets 42,597 and 12,461.

Updated On: 2020-12-03T12:34:36+05:30
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