Bottom fishing has already started in market: Ajay Bagga
And within a week of the RBI policy meet, the second quarter earnings season will kick off.
Are we witnessing value hunting in the mid- and smallcap space since the last 8-10 days?
Quite a few midcaps and smallcaps with good cash flows, good management, good business models are available at decent valuations and we are seeing some bottom fishing in this market. The good thing is that retail money has kept on flowing into this market right through the downturn. Some Rs 8,000-9000 crore of retail SIP money is giving strength to the market.
Three big catalysts await market -- first being the Fed meet next week, where a 100 per cent yield curve is showing a 25 bps cut. Then there is RBI policy decision and just before that there is the GST Council meet and there are hopes of a kind of stimulus in terms of a GST rate cut.
And within a week of RBI policy meet, second quarter earnings season will kick off. On the global front, there is huge expectation of an interim trade deal. With both US and China giving concessions to each other, it looks like Donald Trump would like some kind of a face saving deal going into January, before the start of the election season. If that happens then it would be great for markets the world over.
Sentiment wise, things are looking better , but earnings wise, there is still a long way to go, . Fundamentally, but investors will really see what is going to happen in the next two quarters and take positions accordingly.
ET Now: What do you make of the activity in the mutual fund space? Do you think everything that has earnings visibility, even a little bit after the correction, has started to look good? Do you think that is the space where the money would chase?
Ajay Bagga: Yes, absolutely. Mutual funds are giving an indication of where the earnings recovery will come out and also industrials is another space that can be looked at since there is an expectation of enhanced government spending on the infrastructure part and industrials would be beneficiaries of that.
After the China stimulus and convergent global stimulus, where you saw ECB cutting rates and restarting its bond buying program, we are expecting Fed to come out with aggressive rate cuts next week. China is expected to lay out more stimulus. There is a convergent global stimulus which will be positive for global cyclical and have a knock-on effect on risk. Flows will improve for emerging markets, and it is only a matter of time before we see flows emerge for India too.
If you look at the scenario, what is happening is though FPI money is going out of our markets, we are seeing enough private equity money coming in and FDI announcements being made. So that backlog is being taken up by foreign money. We are not seeing net erosion in value for India's attractiveness for foreign money. We will have to wait for the domestic cycle to turn, but portfolio money will return and the market will go up. I would say bottom fishing has already started and that is validated by the market.
ET Now: What is your view on the real estate pack? Do you think there is some merit in buying largecap real estate names?
Ajay Bagga: I do not believe in the turnaround stories; those will take time because the pain is very huge in the real estate market. Companies which are not leveraged are better off as we are hearing stories of pretty good companies also not being able to pay salaries for months on end. There is a big stretch as far as liquidity goes. Yesterday, you had the case of an NBFC defaulting on its repayment on the ECB side, because they have got too much real estate exposure which they are not able to down sell in the secondary market nor are they able to get repayments on an accelerated basis. So, the problem is very much there in real estate. Markets will front-end that. Yes, three-four companies which do not have a whole lot of leverage on their balance sheets are mostly west and south based and those will do well. But the inventories are very high and it will take a long time for confidence to return and buying to restart or they will have to take dramatic price cuts which somehow the real estate players have not been willing to do in this cycle.
ET Now: What are your top stock or sectoral ideas?
Ajay Bagga: First, it would be the private banks -- both retail focussed and corporate focussed . Those will be outperformers. Second is the public sector banks. There is some consolidation in the top two-three names and there is a turnaround in the NPA scenario and these banks will be beneficiaries. The third is IT; with a global stimulus, there would be a continuation of the global growth story. You will see IT companies benefiting and the rupee depreciation will also help. From here on, you might not see any sharp depreciation in rupee. A lot will depend on how the Chinese currency performs and whether China will let the Yuan to depreciate further. On Thursday, there was a small uptick in Yuan and even yesterday we saw a positive move on the Chinese currency, which is positive for other emerging market currencies and the rupee will be a follower there. But IT would overall do well. Cement and industrials could do well going forward.