In an exclusive interview to NDTV Profit's Namrata Brar, First Global’s Director and Chief Global Strategist Shankar Sharma does not rule that markets may reach close to 21,000 mark if there is sharp fall in oil prices. He pointed out that the five-year long bull run in the Indian markets doesn’t transforms itself completely in a period of just six months. According to him India is still a reasonably young bear market.
NDTV: What is your assessment of present situation in equity markets in India?
Shankar Sharma: The equity markets were looking quite okay till last December but at the moment it is not looking too good.
NDTV: When would you buy India? What exactly are you waiting for?
Shankar Sharma: The decision to buy India would be born elsewhere because it won’t be just India buy but it has to include global perspective. Looking at the current situation in all probability you could see at least one bank fail in the US. Those will create terrific opportunities. You’ll need some cataclysmic event that will signify a market bottom and things will then look very dark. That’s the time when you could see a bull market. So why pick a level, all I am saying is that when the market will be full of bad news, then the world will buy India.
NDTV: But you don’t think that happened when US investment bank Bear Stearns announced liquidity crisis?
Shankar Sharma: That was the moment perhaps in the US not in the rest of the world. Even then the credit problem in the US is widely believed to be not over, it is still unfolding, so it will probably reach a climax when another similar bank going belly up. Bear Stearns was a relatively smaller fish but there are companies with far larger problems who are still afloat, for how long we don’t know. So those events will shape the way the Indian equities markets behave. We unfortunately or fortunately are coupled with the world in the equity markets.
NDTV: So the decoupling theory does not hold value?
Shankar Sharma: The decoupling theory is rightly related to only macro economic issues. Yes, the US is flirting with recession and emerging markets are growing well between 7-10 per cent, so in that sense you could say that we have decoupled. But for the equity markets the opposite of decoupling theory is true, as the US market has outperformed India and China. So strange things always happen in the market and conventional wisdom always never holds good.
NDTV: Hence, should one enter the market when the markets are full of pessimism?
Shankar Sharma: Yes, at that time you can invest 35-40 per cent of your capital and then if the market sell off 10 per cent from their on, go and buy some more. We are telling people that there is value in Tier-II and Tier-III stocks but buy them with the clear understanding that they could be around there for next 1-1.5 years. In 2001 people started getting their feet wet, but none of the stock moved till 2003. A lot of them actually went and became cheaper than what they were in 2001. Like I said if you are a 5,000 shares investor, you can keep your powder dry.
NDTV: Does the present situation remind you of 2001?
Shankar Sharma: Our take is that the rallies you are seeing are very similar. They are punctuated again by talk of infrastructure story as against tech stock earlier. Don’t forget one thing that bar none in India’s tech pack if you ever see those prices again.
NDTV: Do you think the Sensex might not ever reach the 21,000 mark again?
Shankar Sharma: There is very interesting statistics that no market in the world ever has given you six consecutive up years. It is no brainer that India has had five up years till December 2007 and sixth year had to be a down year. Further interesting statistics is that after five consecutive up years, 90 per cent of the time those market will never see those highs again for a minimum of three years. But I am not ruling out that you may reach close to 21,000 mark if there is sharp fall in oil prices.
NDTV: Markets usually sell-off during election time because the government talks of populist measures, which is not something great for equities.
Shankar Sharma: The strange thing is that markets always like to be optimistic than being pessimistic. So around pre-election time, the talks of reforms agenda and to-do list, is good for equity markets. But reality is bad for equity markets.
NDTV: The managements are posting different dreams when they say that they don’t have any problem with input costs rising.
Shankar Sharma: It is quite galling when our new set of management especially the new 2-3 years old listed companies or old companies with big projects on hand, come out and make these kind of statements. You’d rather be out there and be saying the truth.
NDTV: Are you telling your clients that this is the right time to go ahead and buy the US stocks and dollar?
Shankar Sharma: Yes, our best global long trade is US technology and that’s been the case for the last 7-8 months. The dollar bear market is also there for 6-7 years which is again set to reverse. Our best long trade is US technology pack but that’s a surprising trade and most people will disagree with that. But so far the evidence on the ground is that the market has done very well.
NDTV: What does the market expect regarding stability on the political front?
Shankar Sharma: The truth is that India has kept growing despite so many contradictions so I think there is God up there who watches over India. We have to be less analytical about these things but I think India will come through despite whosoever comes at the center. India is a nation of very bright people and a bunch of politicians just can’t hamstrung them. But hey all set and done, equities markets march to a different tune!
NDTV: But somewhere equity markets will have to catch up may be after 2-3 years?
Shankar Sharma: They will eventually catch up. The stock markets still benefits is large parts. I always say that India is a two-square mile bull market.
NDTV: But has you seen the maximum disappointment in those two square miles this year?
Shankar Sharma: If you’ve been into the markets long enough then you do know that it is never just a one way linear trend up. People might say that markets will give you 16-17 per cent compounded returns, but the returns don’t come every year and they come in bunches. If you understand the long term statistics of markets then you don’t get carried away.
NDTV: Do you still stay with defenses of the market? People talk of sticking to FMCG, pharma and tech stocks and get out of high beta stocks?
Shankar Sharma: We should be talking of high beta stocks in December last year. Nobody was calling L&T and BHEL high beta stocks last year but they are suddenly becoming high beta stocks. Also nobody was saying that HUL and tech stocks were defensive but you know the tags change. Whether defensive stocks will give you absolute returns in a bear market is hard to tell. Like I said in bear market if you don’t lose money, you are still okay.
NDTV: In the interim bear market rally, you go and buy these beta stocks.
Shankar Sharma: You just can’t be so brave in six months of decline. A bull market that lasts for five years doesn’t transforms itself completely in a period of six months. So this is still a reasonably young bear market. This bear has got legs and the bull is a tired bull. So you will see these interim rallies.
Shankar Sharma: The equity markets were looking quite okay till last December but at the moment it is not looking too good.
NDTV: When would you buy India? What exactly are you waiting for?
Shankar Sharma: The decision to buy India would be born elsewhere because it won’t be just India buy but it has to include global perspective. Looking at the current situation in all probability you could see at least one bank fail in the US. Those will create terrific opportunities. You’ll need some cataclysmic event that will signify a market bottom and things will then look very dark. That’s the time when you could see a bull market. So why pick a level, all I am saying is that when the market will be full of bad news, then the world will buy India.
NDTV: But you don’t think that happened when US investment bank Bear Stearns announced liquidity crisis?
Shankar Sharma: That was the moment perhaps in the US not in the rest of the world. Even then the credit problem in the US is widely believed to be not over, it is still unfolding, so it will probably reach a climax when another similar bank going belly up. Bear Stearns was a relatively smaller fish but there are companies with far larger problems who are still afloat, for how long we don’t know. So those events will shape the way the Indian equities markets behave. We unfortunately or fortunately are coupled with the world in the equity markets.
NDTV: So the decoupling theory does not hold value?
Shankar Sharma: The decoupling theory is rightly related to only macro economic issues. Yes, the US is flirting with recession and emerging markets are growing well between 7-10 per cent, so in that sense you could say that we have decoupled. But for the equity markets the opposite of decoupling theory is true, as the US market has outperformed India and China. So strange things always happen in the market and conventional wisdom always never holds good.
NDTV: Hence, should one enter the market when the markets are full of pessimism?
Shankar Sharma: Yes, at that time you can invest 35-40 per cent of your capital and then if the market sell off 10 per cent from their on, go and buy some more. We are telling people that there is value in Tier-II and Tier-III stocks but buy them with the clear understanding that they could be around there for next 1-1.5 years. In 2001 people started getting their feet wet, but none of the stock moved till 2003. A lot of them actually went and became cheaper than what they were in 2001. Like I said if you are a 5,000 shares investor, you can keep your powder dry.
NDTV: Does the present situation remind you of 2001?
Shankar Sharma: Our take is that the rallies you are seeing are very similar. They are punctuated again by talk of infrastructure story as against tech stock earlier. Don’t forget one thing that bar none in India’s tech pack if you ever see those prices again.
NDTV: Do you think the Sensex might not ever reach the 21,000 mark again?
Shankar Sharma: There is very interesting statistics that no market in the world ever has given you six consecutive up years. It is no brainer that India has had five up years till December 2007 and sixth year had to be a down year. Further interesting statistics is that after five consecutive up years, 90 per cent of the time those market will never see those highs again for a minimum of three years. But I am not ruling out that you may reach close to 21,000 mark if there is sharp fall in oil prices.
NDTV: Markets usually sell-off during election time because the government talks of populist measures, which is not something great for equities.
Shankar Sharma: The strange thing is that markets always like to be optimistic than being pessimistic. So around pre-election time, the talks of reforms agenda and to-do list, is good for equity markets. But reality is bad for equity markets.
NDTV: The managements are posting different dreams when they say that they don’t have any problem with input costs rising.
Shankar Sharma: It is quite galling when our new set of management especially the new 2-3 years old listed companies or old companies with big projects on hand, come out and make these kind of statements. You’d rather be out there and be saying the truth.
NDTV: Are you telling your clients that this is the right time to go ahead and buy the US stocks and dollar?
Shankar Sharma: Yes, our best global long trade is US technology and that’s been the case for the last 7-8 months. The dollar bear market is also there for 6-7 years which is again set to reverse. Our best long trade is US technology pack but that’s a surprising trade and most people will disagree with that. But so far the evidence on the ground is that the market has done very well.
NDTV: What does the market expect regarding stability on the political front?
Shankar Sharma: The truth is that India has kept growing despite so many contradictions so I think there is God up there who watches over India. We have to be less analytical about these things but I think India will come through despite whosoever comes at the center. India is a nation of very bright people and a bunch of politicians just can’t hamstrung them. But hey all set and done, equities markets march to a different tune!
NDTV: But somewhere equity markets will have to catch up may be after 2-3 years?
Shankar Sharma: They will eventually catch up. The stock markets still benefits is large parts. I always say that India is a two-square mile bull market.
NDTV: But has you seen the maximum disappointment in those two square miles this year?
Shankar Sharma: If you’ve been into the markets long enough then you do know that it is never just a one way linear trend up. People might say that markets will give you 16-17 per cent compounded returns, but the returns don’t come every year and they come in bunches. If you understand the long term statistics of markets then you don’t get carried away.
NDTV: Do you still stay with defenses of the market? People talk of sticking to FMCG, pharma and tech stocks and get out of high beta stocks?
Shankar Sharma: We should be talking of high beta stocks in December last year. Nobody was calling L&T and BHEL high beta stocks last year but they are suddenly becoming high beta stocks. Also nobody was saying that HUL and tech stocks were defensive but you know the tags change. Whether defensive stocks will give you absolute returns in a bear market is hard to tell. Like I said in bear market if you don’t lose money, you are still okay.
NDTV: In the interim bear market rally, you go and buy these beta stocks.
Shankar Sharma: You just can’t be so brave in six months of decline. A bull market that lasts for five years doesn’t transforms itself completely in a period of six months. So this is still a reasonably young bear market. This bear has got legs and the bull is a tired bull. So you will see these interim rallies.
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