Market Grinding Lower; Good Time to Build Long-Term Portfolio: Sharmila Joshi
Indian equity benchmarks snapped a two-day losing streak on Tuesday, although just barely, thanks to last-hour buying in shares of information technology and some of the cement names covering lost ground.
However, Sharmila Joshi of sharmilaJoshi.com isn’t buying the recovery. In an interview with BloombergQuint, she said the market seems to be grinding lower, finding it tough to sustain at higher levels.
Below are the edited excerpts from the interview.
After spending the entire day in the red, the markets recovered their losses in the last half an hour of trade. What led to this sudden bout of buying?
The freight hike news hit the market somewhere around 1:30pm and you saw the markets falling to the low point of the day. The news spooked the market. Freights going up by 19 percent is not a good idea. But then you got clarity that it is only on coal and that too, more of a rationalisation than a freight increase. I would say that’s the point when the markets really started to turn.
From thereon, we had some recovery in the cement names that had corrected a lot. We also saw improvement in IT (information technology). I don’t really buy too much into this recovery but at the same time the 8,600 level has held. So, my overall feeling is that market seems to be grinding a little lower. It is finding it difficult to sustain at higher levels.
That was my follow up question. What have you made of the market over the past couple of days; the range for the Nifty seems to be getting narrower every day?
Absolutely. That’s the feeling I am getting since Thursday last week, that every day you see a little bit get shaved off the market. While it is not going down so much that you would say “Oh, the market is going down!” but at the same time it doesn’t seem to be in a mood to see any big upmoves now and you do find people cautious at these levels.
In a way, it is good because if the market consolidates at this level, it provides you with a better base for the next upmove. But at the same time, this seems to be a market where the range has become very limited; it’s possible the F&O expiry also had some hand in it. The Nifty may now move in a range of 15-20 points.
Foreign institutional investors have been buying into Indian equities relentlessly for over 26 days. However, yesterday they were net sellers. Do you think this is an indication of a change in trend or would you look at it as a one-off?
There could be a little more selling but I don’t think that will be a change in trend. So far, you saw hedge funds and ETF flows. Going forward, you could see longer-term money also come in. That seems to be the indication that a lot of investors are positive on India given the fact that within the emerging market basket it is a strong play, better than a lot of its peers, where you also see more growth.
It stands to reason that we will continue to attract flows. So, you could see a little bit more (selling) but you will see other money coming in over a period of time.
What did you make of the first quarter earnings season so far? What were the hits and misses for you?
Some improvement came from the PSU banking space where you didn’t see NPAs balloon too much. There seems to be some sense that things could look better for them going ahead.
In terms of disappointments, IT and pharma were expected to not do too well and I think IT largely was a letdown. We are not seeing that pick-up coming whether it is capex or consumption. Hopefully, given favourable monsoons, that could happen over the next three-four months.
But earnings this quarter don’t seem to suggest that at all. In the last quarter, one of the reasons why we saw this rally in the market was the fact that the numbers had somewhere indicated that things are on the mend. But I did not really see a reflection of any continuation of that in this quarter.
What are triggers that you would be watching out for going forward?
Precisely what I said; if you see that pick-up in construction or capex. One thing is a given, with the seventh pay commission, that money will be in the hands of the people. You will see a pick-up in consumption plays. And by consumption I don’t mean small-ticket consumption.
I don’t necessarily mean an HUL or an P&G kind of stock but the two-wheelers and white goods space. You could see some pick-up there given the kind of money that will flow into the hands of people. So it will be like that aspirational kind of consumption. So that would be one interesting thing.
Second interesting thing to watch will be what happens with the kind of activity that you are hearing about from the NHAI etc., which could lead to growth in road makers, and in fact anything in construction, including cements, and capital goods. If you start seeing the capex cycle resume then I think that will mean things going ahead.
What is your advice to investors right now?
If you are a longer-term investor then it makes sense to incrementally start buying. I don’t want to predict a new bottom or a new low. You have to keep identifying stocks that you like and keep adding them to your portfolio because a lot of the things that were expected to happen, have happened in the last month or so.
Whether it is GST, or the appointment of the next RBI governor, one earnings season is out of the way, we had a good monsoon and the seventh pay commission has happened. So those will play out over the next 6-8 months—whether it is the immediate effect of the monsoon or the longer-term impact of an RBI policy etc.
So things are now in place and it provides a good base to start building a portfolio. My advice would be to use this opportunity and start adding to your portfolio.
I like the NBFC space. So within that Equitas because a lot of the other stocks that I recommended have run up quite a bit. Then I also like paint stocks like a Berger Paints.