Domestic investors are flush with money and a lot of it is going into equities: Sunil Subramaniam, Sundaram MF
Even if you factor a 10% growth in EPS, you will have a 4,000 point boost in Sensex
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Sensex is at a record high. It is clear that the market has made up its mind that the worst is over?
Absolutely. The positivity of the government action is filtering through now to the market and while the results of the festival season are mixed, the bad news is not as bad as expected. Internationally, there is a good headwind coming through. Now the market is in a very nice spot because the correction which has happened in cyclicals, is giving a lot of good buying points for domestic investors.
Given that we have seen a lot of cheers in a few sessions post the festive season, particularly in segments like auto, would we be able to sustain that momentum or will the gains be more measured from here on?
Two things here. The domestic investors are flush with money a)because they are not spending as much as they should. It is going up slowly. b)Competitive investment like bank deposits are going down. Today a lot of the money which was going into shadow banking like cooperative banks have opted out as there was a little bit of a scare there.
There is money with the mutual fund industry. LIC said they have got Rs 30,000 crore or more into equities. So there is money in the system which was not fully getting committed into the high risk high reward asset space all these days and sitting in arbitrage and slightly safer options. That is now beginning to get shifted into actual stocks and people who have been tracking these stocks and waiting for the right price point to buy, are now increasingly finding that they are able to do that.
I would say that from now on, the continued liquidity will give a strong support to the market and my sense here is that the Budget will see the next big announcement. This government is probably going to do some big bang kind of announcement in the Budget.
What is leading to the bounceback?
From a very short term view, two things have happened here; one is that there was a lot of short covering in the market because of the uncertain news over the last three, four months and those shorts are getting covered. That , that is what leading partly to the bounce back.
In the July-August-September quarter what happens is you start discounting the FY21 versus FY20 and this is a very significant period every year in the stock market when the market shifts its view. Now the market was unable to take the view because of all the bad news in the economy coming and was waiting for festival season to come. The discounting for next year has not yet come in. That is taking place now -- in the October-November-December quarter. Everybody is looking at the EPS for FY2021, looking at the positions and automatically the rerating will come because even if you factor a 10% growth in EPS, you are going to have a 4,000 point boost in Sensex.
The fundamental fact is that the market is now looking a year down the road and trying to look at what all can happen. That itself is a strong boost to the market because they are looking past the short-term uncertainties at the longer term play. A significant thing that we have to keep in mind is my view is always going to be as an investor with a 3-5-year perspective and not necessarily as a trader with a three to five-month perspective.