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See Nifty at 13,500 in next 12-18 months and the theme is quality: Atul Suri

ET Now|
Sep 27, 2019, 01.03 PM IST
0Comments
Atul Suri2-Marathon PMS-1200

Highlights

  • Money is going to move to quality whether it is largecap or is midcap.
  • $5 trillion will happen. You don't want to fight Modi at the moment
  • Specialty chemicals, insurance do well even when markets fall.

The next one to two months should give us a lot more clarity because a lot of numbers will come, companies will talk, analysts meet and thatwill give us a deeper understanding of what stocks to bet on for the next move, says Atul Suri, Founder, Marathon Trends – PMS. Excerpts from an interview with ETNOW.

Are bulls getting ready for the next big move that we saw last Friday and is this week behind us now?
It will be consolidated, it will take time. We are going to head much higher, around 13,500 on the intermediate timeframe.

13,500 which means a new high and substantially over time.
But the fact is that one must remember that we moved 10% in two days. We could go in for a bit of consolidation -- a few hundred points. There are two things: a) global markets seem to be pausing and there is a lot of commentary and chatter. How much it fructifies I do not know but even they will eventually move higher.

b)We have corporate earnings coming up next month and that will be very important. We are not expecting anything spectacular from there, but I am very interested in the commentary that comes from companies because they have had a very big benefit on direct taxes. We have to see how they are going to use it and whether it is going to be straight profit after tax or there would be some sort of capex plans.

The next one month will be very interesting and it will not be just across the board. We have had a 10% short covering kind of rally. It will be a little more differentiated. Banking as a sector has done well, but what the PSU banks are doing vis-à-vis what some of the private sector banks or corporates are doing, is very differentiated. So the 10% move has been across the board in most. An index short covering rally really happened and there were lots of shorts in the system, but going ahead, it will be a little more differentiated here.

Ever since last Friday, one has seen that the PSUs are back in focus. From NTPC to BPCL to GAIL, the entire energy sector is charged up because now the expectation is that after corporate taxes, next is going to be divestment. Is it risky going long on these charts or is this a big directional move in PSU names and particularly in OMCs?
I personally think that it is a punt. There is a feeling and a buzz on the street that it is going to be massive PSU divestment. That is a punt. It is a faith rally. However, I do not think they are compounding stories or they are backed by earnings. If it does not happen within the timeframe, they also tend to fizzle out. We have seen this repeatedly -- be it in PSU banks or even OMCs.

It is a bit of a punt that is there on expectation that something will happen. It is likely to happen but if it does not, I do not think that it can be a part of your portfolio in the long term because ultimately in your portfolio you are looking for compounders and one cannot play this. They are great for an individual trader but I do not think as a portfolio you put it in the hope that a divestment will come about. Yes, if you see value, if you see a great price and great trends, then it is great, but I would not just play it for one event which may or may not happen.

The next 2,000-point up move that you are expecting, is it going to be primarily led by domestic buying? Are you seeing a move from FIIs also in terms of sentiment?
FIIs continue to be on and off. One expected that the number would be blue all days but that has not happened. I personally think that they will look for numbers, for corporate performances and that is still some time to go. What has really changed exactly a week ago at this time, it is Friday and it is almost like a weekly sort of expiry for us. What really changed is the sentiment. Last week the mood was bad.

Now we are optimistic and we are invested in this market. Our stocks held on very well, they were doing well but what was lost from budget to this month till last week was the faith, the hope. We always heard that in Modi 2.0, there is going to be some big bang stuff together with this $5-trillion economy. It all seems like a pack of marketing gimmick. What really happened was the size and magnanimity of the move really brings that faith back and that is what gives the market another three-six months.

We have been working on this. The numbers are going to improve and we have been hearing it for years till about a week ago when the sentiment had gone bad.

But you saw the magic play out only last Friday.
Yes, I mean and it was something which no one could anticipate.

Then you see that point move to the new levels that you are talking about. Assuming that even further conviction comes after we see it reflected in earnings. what is the time line you are looking at for that new high?
It will take a year-year and a half. As I said, it will take time and it will have to be backed by numbers. You cannot keep on having a hope rally. The kind of statements you hear in the Prime Minister’s speech to the corporate bigwigs in the US in the last couple of days, you understand that it is not the end and now you know you have to believe that this government has got its mind set on that $5 trillion number.

How they do it, whether it happens or not, only time will tell but yes the attempts are going to be there and then you do not want to mess around. As I said, you do not fight the Fed, I do not think you want to fight Modi at the moment.

Where does leadership come from for peak 13,500?
It is going to be quality again. Most people are trying to say midcap, largecap etc. I think it is quality. The pain I have seen in people’s portfolios is so tremendous in that junk space where they are down 50, 60, 70% and I do not think money is going to come into that.

You will see pullback rallies or you will see oversold rallies or little bit of game but money is going to move to quality whether it is largecap or is midcap. Quality is what is really going to pan out and you are already seeing that when the fall happened. Portfolios are holding out because you are in quality and as and when the market reversed, the leadership that you found in this space was fantastic. So I personally think it is going to be quality driven.

I know you are looking at the private banks as is the rest of the market.What would be next in the pecking order?
No, there are lots of other sectors. We have been overweight on specialty chemicals for the last two years. Insurance is another very interesting sector which, even when the market was falling, continued to make new highs. Even when the market is getting reversed, they still continue with their march.

So are you finding those value picks out there?
I do not think it is value, I think it is growth.

You had made money by going short, but now has the rule changed?
The question is the size. If you are trying to play short for a massive move, I do not think that is there. If you are playing for 50-100 points those guys will continue to play, it is their bread and butter, that is their job, that will keep happening and that is very important because for a market, it gives that liquidity. So if you are playing for a 100-200 points yes, I think it may make sense any of these days.

That could happen while we are speaking. That could happen tomorrow morning, we do not know.
Exactly. For that group-- and mind you there is a big number, there are a lot of guys who are playing these option strategies and things like that. Last Friday was difficult for many but there are a lot of guys who have a lot of systems and they are a major part of the volume actually and they provide liquidity, so no complaints. If you are playing with that and you are really fast and you are quant based, it is great, but if you think that you can take a strategic short call, I would a little wary.

I am asking you these basic questions; a) Should one not go short? ; b) Do you expect markets to move slow and steady but gradually higher or do you expect markets to be choppy as they climb higher? On Wednesday, we saw a crack and on Thursday, a big uptick. It is impossible to predict.
I personally think that the next rally or this number that I gave you will be on the basis of some numbers that will come through. These do not come as a surprise. They get built in and there is a process to it. The insiders, then the brokers and then the public, that cycle always happens.

The only joker in the pack is the government announcements. Theoretically assuming they decide to divest 100% in BPCL, yes that will lead to a trigger. That could be the jumpy points we do not have any control on. So stick to quality, stick to numbers, keep with compounders and stay with the trend. If you are lucky, like we were last week, when it all worked out fine, sometimes maybe I do not have a BPCL or HPCL in my portfolio and I may miss out, but everyday of the season, you cannot be be happy!

For those who missed the bus, how does one catch the bus -- jump now or wait for a decline? The decline could come when quarterly numbers come out? Is that a better strategy?
Every day people wait for corrections but nobody invests in corrections. I am receiving top ups in my PMS from clients who first transfer the money and then let me know. They call you and say have you deployed the money? So we top more. A week ago, if I was meeting clients, they loved you, they loved your product, they loved everything about you and then they say yes, we will consider it. They may say thoda abhi liquidity ka tight hai (liquidity is a little tight now). Suddenly where is the liquidity coming from?

My observation is we wait for so-called corrections but money is deployed in breakouts and at some stage, you have to have the faith, you have to bite the bullet. You are not going to get a market correction. You are going to buy and the next day the market is going to go up? No, it is never going to be a perfect entry. You have to look at the larger picture.

So you are saying one should jump in whenever?
Whether you invest now or 200-300 points lower, nobody can time it to perfection.

From a return perspective, you may be closer to a 10% upmove. Do you think we are going to see that come back?
I do not think so you are going to get these 10% pop ups in a day or two. No, no, I do not think so.

Over the growth scenario that you are painting?
Yes, that is there but you have to be more gradual and it will be more differentiated like it is going to be about numbers. I am very interested in the kind of commentary that managements come out with, the savings that they are going to make in taxation, direct taxes, how are they going to use it, is it going to be profit after tax, is it going to be for promotion, brand building, technology and things like that. We have all pencilled in a number that this was the tax rate, why so much so should benefit etc. But what is going to happen with that money?

The next one to two months should give us a lot more clarity because a lot of numbers will come, companies will talk, analysts meet and that will give us a deeper understanding of what stocks to bet on for the next move.

Since you have already pencilled in that 13500 mark, what is going to push the Nifty to that mark? Will it be a cluster of ICICI Bank, Nestle, the usual suspects, HDFC Bank or would newer names L&T could contribute to the move?
It will be much more broad-based and since a certain segment of the market has done well, a)it will broaden. b)The theme that I stand by is quality. Look for quality. Let us take real estate as a sector. The moment I tell you real estate, stocks are down 90-90%.

But you always liked the quality within real estate?
Yes, exactly, but even in real estate you will find a few stocks nudging towards lifetime highs. What I am trying to tell you is that in small and midcaps, you are not going to see those levels. However, where there is quality of management, quality of earnings, you will feel that those levels are already getting taken out and real estate is a case in point. There are so many stocks which in spite of the biggest pain point in our industries, are touching lifetime highs! How is that happening? What is the differentiator?

And that is happening in sector after sector, you look at cement, you look at bearings, you will find that this theme is really playing out.

What happens when markets come back and when we sit at an all time high? Risk comes back and risk cannot be played by buying a Nestle. You cannot buy risk by buying consumer names. For a trader who says I do not care about quality, I care about trend and I care about making money when the trend is higher, will risk come back?
Yes, definitely it will come back. There are cycles. You always find leadership in larger players, the quality are the safer bets. At some point that catch up will happen but when will that catch up happen because at the moment even in the larger ones that we are talking about, there is a hope trade. They are holding out but you want to see a broad-based revival coming into the economy and a catch up will happen.

So it will happen, everything has its time, the question is how much time we may get and again as I said, it is not going to be across the board. Just because you have a smallcap stock and it is in your list of 150 stocks, which most retail guys have in their portfolio, there is no guarantee that it is going to work.

Markets are headed higher. Stick to quality, you will make money by going long, do not go short. But I wish markets behave the way we want.
No, no it does not, it never does.

What will pour cold water on your thesis? What is the sacrosanct level beyond which you would say you were wrong and would rather be a seller now?
Looking at the price levels, I feel the market has made a higher bottom. The last major bottom we made was in 2018 October. The Nifty was around 10,000. Now we have made a higher bottom at 10,600 or thereabouts which was last week. I am giving out these numbers because I feel the market has made a higher bottom in space. So if that bottom gets violated, I would be worried.

Roughly market bottom at 10,500 right?
No, it went to 10,000 October of last year. Where your thing starts, that is a bottom, one circle there. The second is where you have drawn it.

So you would say this really is below the water mark?
Right. That would be almost like what you will call last week’s lows. That level of 10,600 would be a very important level because the markets made a higher bottom. If that gets violated, I will be really worried.

You track the global markets as well closely. Is the risk for US yield still there because that is the big global fear which could challenge everything that we are talking about here in India.
It would stabilise at these levels. There is a feeling that it is going to collapse and things like that. I feel it is at historical levels and it could bounce around and so it may spend some time here and not dominate headlines which I think is good enough.

The If that cracks, remember, it is the mother of all asset classes or charts in the world. So if that happens, a lot of things change. But I personally think that it would stabilise or spend some time here where it is like the dollar also, the DXY. If it is not in headlines, it is good because the moment it makes headlines, then a lot of things go out of whack. If it even goes for a multi-year sideways, it is even with us, with our currency and bond yields. As long as they do not hit headlines, they are good news. The moment they make headlines you got a bit of a problem.

But you are overall reassured that we are on the right track now?
I hope so. That is how I am positioned…

7-8%...
Yes but even while the markets were going down, I was 95% invested. From that point of view, one goes through the ups and downs and pains. You have to ultimately live with the faith. It is beyond numbers beyond a point in time. I am one of those who believes that Indian markets will be substantially higher. Sometimes you go underweight, overweight but more or less you are in and you get rewarded. On a day like last week if you are were not in, there was no chance. So if you were sitting on cash, you missed the whole bus. So, it is about being invested and keeping a longer term faith on the trend.

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