Atul Suri On Why India’s Stock Rally May Not Be Done Yet

India’s equity market has a “lot of catching up to do” with global peers after the country comes out of the punishing lockdown to contain the coronavirus pandemic. That, according to Marathon Trends Advisory Pvt.’s Atul Suri, is an opportunity.

“The markets are more impacted and interested in the economic fallout and that is why I feel in this pullback, India has under performed to a lot of other global markets,” the chief executive officer at the portfolio management firm told BloombergQuint in an interview. The next two-three months, during which India reopens its economy, will be crucial in determining the market rally, he said.

Indian equities had tracked global peers in the worst selloff in more than a decade after the new coronavirus froze economic activities. But the benchmarks pared most of their losses as the nation announced stimulus and gradually eased lockdown restrictions. Suri cited the instances of some of the worst-hit nations that saw sharp market rallies after the initial plummet.

The U.S.—the world’s most affected nation—saw its market bounce back in a month after the global selloff in March. The Nasdaq is back to a lifetime high, Suri said. While many may argue that this was because of the quick and expansive stimulus, Brazil and Russia, which did not announce robust packages, also saw a rally. Brazil and Russia have risen 46% and 55%, respectively, from their base, he said.

India, however, has under performed compared to many other because of its severe and long lockdown. India may be the case for a “very good catch up rally”, Suri said, as he urged investors to see this as a “glass half full” situation.

Global markets had seen a similar situation after the 2008 financial crisis where the U.S. stocks bounced back in 2009 but the real economy was weak. “An infusion of liquidity over a period of time healed the underlying economy and it did a big catch up,” he said.

While sentiments are poor and bearish, Indian market is forward-looking and expects to see the economy catching up, Suri said. “And I’ve learnt in life not to fight Mr. Market.”

Quality Over Greed

Another trend highlighted by Suri is that India’s small-cap index has outperformed the Nifty 50 and the Nifty 500 indices. A lot of the beaten-down stocks, which had once turned into penny stocks, have given the best returns, he said.

But investors should stick to quality stocks to save themselves from financial damage, Suri advised. Quality can be found in both large and small caps, he said.

Even though the blue-chip large-cap stocks may be taking a “breather”, this does not make a case for moving away from them to make opportunistic gains, he said.

Here’s what Suri had to say about the pharmaceutical, information technology, and telecom sectors...

Pharma

• Everyone was underweight on this, there has now been a surge in this space.
• There will be a structural change in how people allocate to this space.
• Not just in India but across the world, this sector will attract a lot of investments at company level, industry level and individual level.
• What was ignored and under-invested in will come back to favour.
• When you look at trend investing, you look for consistent growth and we think pharma has that.

Information Technology

• There will be tremendous balance sheet destruction in many sectors but IT is one space which is functioning, especially with its work from home culture.
• A lot of people have accepted that maybe we are more efficient working from home.
• IT as a place has been a saviour for all of us and there is no reason why this allocation will not increase.
• The only thing is what will you pick up because in IT you have a very big basket with different business models.
• Could pick up something in the mid-cap category, which will structurally benefit after this.
• IT is interesting, it is visible in earnings and in the price movements you can see.

Telecom

• Another sector where we are overweight.
• We have started consuming double the bandwidth, not just for work, but also for entertainment.
• This is a habit, we have learnt to mobile. When you get used to a certain level of consumption, the usage doesn’t go down.
• ARPUs to start moving up.
• Not a one-three month trend, it’s a 3-5-10 year trend.
• Have vested interests in Reliance Industries Ltd. That stock has almost doubled in the last three months. It’s not just a stock but almost a sector. It is because of Reliance that you see the Nifty where it is.

Watch the full conversation here: