Bank recovery critical for mkt upturnIndependent market expert, Ratnesh Kumar, believes that if one was to look at about 2-3 quarters down the line, then quality banks are likely to attract lot of value investing.
Independent market expert, Ratnesh Kumar, says he expects the recent spate of earnings downgrades for most companies, which led the stock market to plummet, to bottom out by the first quarter of the next calendar year. Thereafter, there can be a gradual recovery, Kumar says.
Right now, all emerging markets are seeing a sell-off and foreign fund flow is consistently negative. India, in particular, is facing the brunt of foreign institutional fund outflow largely in the banking space. Secondly, the banking sector is grappling with the issue of historical non-performing assets (NPA) levels and this is weighing on banking stocks further, Kumar says.
However, Kumar believes that if one was to look at the long-term or about 2-3 quarters down the line, then quality banks are likely to attract lot of value investing. “I am fairly optimistic that 2016 for the market will be better than 2015, and within that context I think banking sector has to lead the way. Whether that happens after one quarter or two quarters, that remains to be seen but banking sector has to lead the way”, he adds.
Jai Bala, head-technical & cross asset strategy, 1857 Advisors, says he would wait and watch if the market breaks the lows touched in September. “It is not a necessity for the market to break the September lows but if it does we are looking at the level of 7225 and we might see the market psychic change to levels of 6500 or much worse”, Bala says.
“If September low does not get taken out, we have got to be patient for the market to take out the descending trendline that we spoke in the month of November, that is currently placed at about 8150-8200. If the market were to take out that without taking out the September lows, I think even that will be a confirmation that the markets low is in and the uptrend has already resumed,” Bala adds.
Based on technical charts, Bala sees good trading opportunity for Mahindra and Mahindra ( M&M ) and Hindustan Unilever ( HUL ) in among large caps and Chennai Petroleum Corporation in the midcap space.
Below is the verbatim transcript of Jai Bala and Ratnesh Kumar’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: It has been very disappointing, these last couple of weeks for the bulls. Should retail investors lose faith now or do you think that it is still a good time to be buying on every dip?
Ratnesh: Short answer to that will be, retail investor or any investor should never lose faith as far as equity is concerned; it is a long-term asset class. It is not the first time that you have had a phase like this in the market and it is not going to be the last. So, clearly we have to take a look at how the fundamentals are evolving and with every dip the market’s valuations become more attractive. That does not mean that it is going to immediately come back.
However, one needs to be constructive always on the market. Especially in a growth economy like India, you will have phases where market will be dealing with either over expectation or excess pessimism. I don’t think we are at either of those phases but nonetheless it is drifting down and one needs to be more constructive rather than the other way round.
Anuj: What phase are we in right now, you have seen so many market cycles, what kind of correction is this because in the last bull market corrections were sharp and swift and this time we have had almost a year long correction, the top was made in January ad we are in December grinding lower. How would you describe the current market phase?
Ratnesh: Current market phase I would think that in the near-term we probably have more downside simply because the market for the last six to eight months or 12 months, as you mentioned, has been searching for, looking for data points which will point towards actual recovery be it on the corporate performance or the overall economy. So, that is not been forthcoming and unfortunately the December quarter results which will be out in January that is not going to be something which is going to signal a turnaround, at best it can signal a bottoming out of earnings.
So, the phase of the market where we are right now is we are still in the consolidation phase. Potentially we are still in the drifting down phase but eventually there will be a point where the value will be apparent and there will be more positive liquidity which will be there in the market.
The other thing which is relevant for the market right now is that along with emerging markets, India is not the only market, all emerging market asset classes are seeing a sell-off and India is also getting impacted. So you see the foreign flows consistently being negative and that is a function of the fact that emerging market asset class is seeing an outflow as a whole and there is an element of negative impact because of that.
Sonia: What do you with individual stocks now because you have some great quality names which are sitting at 52 week lows whether it is Axis Bank , whether it is Larsen and Toubro (L&T), ICICI Bank and in the broader markets names like Bharat Forge , etc. Do you go out there and buy these companies or do you think that you can get better levels in the months to come?
A: It would always be very difficult to predict the exact bottom. As I mentioned, we could get the market drifting lower over the next month or two but within that context of which I think the areas to focus on will be areas where eventually when the market recovery and the economic recovery begins to be more visible then which are the areas which will benefit first from the market and within that banking sector will be front and center of it.
Clearly last week as you mentioned, it has taken a big knock, so gradually quality names as you suggested can be accumulated with a clear viewpoint in the short-term, in the overall market drift down they can get lower so the investments can be spread put, phased put to average out the price.
Anuj: How much lower for this market, we have seen 7500 now been tested for second time in the year, do you think thus mark will eventually give away and if yes how much lower for the Nifty?
Bala: We want to see the market break the September lows, if it does that in a counterintuitive way it will be quite positive because once the market takes out the September lows we want to see much more despondency come through for the market. We want to see the reverse psychology of what it was in beginning of March when it was 9100, there was hardly anyone saying that the market will go below 8000 barring one or two analysts like me. We want to see the reverse if the market were to go below the September lows. It is not a necessity for the market to break the September lows but if it does we are looking at the level of 7225 and we want to see the market psychic change to levels of 6500 or much worse figure or even call a huge bear market. We want to see that happen and if that happens the bottom will be very much in. If that doesn\\'t happen, if September low doesn\\'t get taken out, we have got to be patient for the market to take out the descending trendline that we spoke in the month of November, that is currently placed at about 8150-8200. If the market were to take out that without taking out the September lows I think even that will be a confirmation that the markets low is in and the uptrend has already resumed.
Sonia: This week or the week gone by was a great opportunity to short some of these PSU banking names, PNB , Bank of Baroda , SBI , they were all down about 6-8 percent. Is there further shorting opportunity in the week to come?
Bala: It is better off playing short positions from this point of time if you are not already short through Puts rather than shorting the Futures. I think there is little more downsides to come through for the banking index. If you recall from last couple of interactions, I had pointed out the frontline banking names like SBI and ICICI struggling under key resistance levels. I pointed out that ICICI was struggling under Rs 295 and SBI was struggling under Rs 265. So, these names are actually dragging the banking index. In fact the weak spot for the overall market is the banking names and that is the reason why we are seeing this drag. If 16200 on the bank index were to give in I think we are looking at something close to 15500 for the bank index.
Anuj: I remember every time ICICI Bank or Axis Bank used to fall 10 percent it used to be great buying opportunity and we always used to see that being lapped up. This time around we have seen consistently Axis Bank and ICICI Bank trading at 52-week lows. We are not even talking about PSU banks right now, large cap private sector banks, the high pedigree banks rolling at 52-week lows and that is where the big retail question comes in that these are quality stocks, if we are not making money here, if we are losing so much money here then what about rest of the market, what is plaguing private banks in particular?
Kumar: First up you have to look at the technical side of the equation which is not the technical charts but the flow side of the equation which is that the banking sector is clearly the largest sector in the market ad if you look at last few months you had consistent FII selling and the biggest proportion of FII money is in the banking sector within which in the private sector banks. So, some of the impact is because of FII selling. Obviously as that happened much of it will happen within the private sector banks in a proportionate basis.
Secondly for the sector right now it is grappling with the issue of historical NPAs which are there. Every time that you get news flow which can be adverse related to that then obviously you have an impact.
However, if I was to look long-term which is in 2016 and try to play out the whole year today sitting, you will have as you mentioned the quality companies, quality banks, they will find a level where they will attract value investing and much of that will also be triggered by when there are initial signs of recovery be it in the credit growth, be it in the overall economy and overall economic growth recovery or the hopes of recovery will also hopefully ease some concerns on the NPL side.
So, I would definitely not lose hope, in fact if the converse is true that if the banking sector doesn\\'t come back, it is going to be very difficult for the market overall to come back. So, I am fairly optimistic that 2016 for the market will be better than 2015, what the year that we are just ending and within that context I think banking sector has to lead the way. Whether that happens after one quarter or two quarters, that remains to be seen but banking sector has to lead the way.
Anuj: AS you know, we ended last segment on an optimistic note, so let us talk about some buy ideas. You have a buy idea in Havells ?
Bala: We spoke about Havells in the month of October too, but the stock has bottomed close to Rs 240 and done a pretty good job from those levels. The current decline in the markets is likely to present entry opportunity for people who did not make an entry closer to Rs 240-250. If the stock were to drop below Rs 290, somewhere between 290-275, that will be an ideal re-entry point for people who are already long, or people who missed the first leg of the move.
If the stock were to take out Rs 320 on a closing basis, it will be a confirmation that the stock is heading towards Rs 410-425.
Sonia: There was some news flow that we heard on Friday, with respect to an anti-dumping duty on stainless steel from markets like China, etc. and we have seen the metals space in our own markets see a bit of a rebound. Now, that some steps are being taken by the government, would you put any money into the metals space or would you still be cautious?
Kumar: well, because the horizon for which I am talking about investment is one year or plus, some of these specific news flow related things will have a fairly short-term impact on the market. Obviously, if that news flow is positive, it is known to have a positive impact, but fundamentally, if I look at going forward from here, I would be underweight on the commodities space. Still, it is too early to look for value there and these will be one of the trading opportunities which will come. But, rather, I would focus the portfolio more towards segment sectors which can benefit from potential recovery in the economy and the market.
Anuj: No earnings recovery yet in sight and we have seen the kind of impact it has had on the market this year. Next year, do you see this kind of pace continuing where the index does not do anything, or in fact, goes down further, but a lot of individual names will do well and is still a big bull market for – if you are right in terms of picking stocks, from a bottom-up stock picking opportunity?
Kumar: First important event will be the earnings downgrades have to stop. Up until now, what we were seeing is that the expectations have continuously been downgraded. Now, if you look at where we stand, FY16 is already down to 8-10 percent kind of an expectation. Now, FY17 and FY18, you are still – the bottom-up forecasts are 17-19 percent across the street. You still have a possibility of those numbers being downgraded. So, hopefully, that gets done by the time the December quarter results are out in January.
So, by the first quarter of the next calendar year is when I would expect earnings downgrades to bottom out. And then we can start a gradual recovery. So, purely on your question of earnings, when will the recovery be seen? I think the bottoming out will be seen in the January March quarter and the recovery a couple of quarters down the road.
Sonia: If you had to give us two or three strategies that one can execute for next week on individual stocks, what would your top buys or sells be now?
Bala: First look at the sell at this point of time. If you look at the auto sector, it is showing signs of considerable amount of correction coming through in the next week or so, so if you look at something like Mahindra and Mahindra, it has clocked a lower high in the last week. It is heading towards somewhere close to Rs 1,025-1,010. So, if you can place a stop above Rs 1,350 for Mahindra and Mahindra. I think it is a good trading in opportunity for this price objective of Rs 1,020.
And on a long side, if you look at something like Hindustan Unilever (HUL), we want to see it close above Rs 840. If it closes above Rs 840 in the next week, I think it is going to pick up considerable amount of steam on the upside and it is going to be the main stock that is going to take the lead for the overall market. We want to see the stock close above Rs 840 on a closing basis.
Anuj: Any midcap ideas apart from Havells that we discussed?
Bala: On the midcap space, you have got to be very careful. We had mentioned about Chennai Petroleum Corporation the last time. That is looking quite positive. You can place a stop below Rs 170. The stock is looking quite attractive for the medium-term, not for the short-term, so that is the reason why I did not talk about it just now. So, it is going to take about 6-8 weeks or slightly beyond that for the stock to achieve a price objective of about Rs 280 plus. But, it has put in a short to medium-term bottom and the price action so far is looking quite positive.
Happy Investing
Source:Moneycontrol.com
Independent market expert, Ratnesh Kumar, says he expects the recent spate of earnings downgrades for most companies, which led the stock market to plummet, to bottom out by the first quarter of the next calendar year. Thereafter, there can be a gradual recovery, Kumar says.
Right now, all emerging markets are seeing a sell-off and foreign fund flow is consistently negative. India, in particular, is facing the brunt of foreign institutional fund outflow largely in the banking space. Secondly, the banking sector is grappling with the issue of historical non-performing assets (NPA) levels and this is weighing on banking stocks further, Kumar says.
However, Kumar believes that if one was to look at the long-term or about 2-3 quarters down the line, then quality banks are likely to attract lot of value investing. “I am fairly optimistic that 2016 for the market will be better than 2015, and within that context I think banking sector has to lead the way. Whether that happens after one quarter or two quarters, that remains to be seen but banking sector has to lead the way”, he adds.
Jai Bala, head-technical & cross asset strategy, 1857 Advisors, says he would wait and watch if the market breaks the lows touched in September. “It is not a necessity for the market to break the September lows but if it does we are looking at the level of 7225 and we might see the market psychic change to levels of 6500 or much worse”, Bala says.
“If September low does not get taken out, we have got to be patient for the market to take out the descending trendline that we spoke in the month of November, that is currently placed at about 8150-8200. If the market were to take out that without taking out the September lows, I think even that will be a confirmation that the markets low is in and the uptrend has already resumed,” Bala adds.
Based on technical charts, Bala sees good trading opportunity for Mahindra and Mahindra ( M&M ) and Hindustan Unilever ( HUL ) in among large caps and Chennai Petroleum Corporation in the midcap space.
Below is the verbatim transcript of Jai Bala and Ratnesh Kumar’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: It has been very disappointing, these last couple of weeks for the bulls. Should retail investors lose faith now or do you think that it is still a good time to be buying on every dip?
Ratnesh: Short answer to that will be, retail investor or any investor should never lose faith as far as equity is concerned; it is a long-term asset class. It is not the first time that you have had a phase like this in the market and it is not going to be the last. So, clearly we have to take a look at how the fundamentals are evolving and with every dip the market’s valuations become more attractive. That does not mean that it is going to immediately come back.
However, one needs to be constructive always on the market. Especially in a growth economy like India, you will have phases where market will be dealing with either over expectation or excess pessimism. I don’t think we are at either of those phases but nonetheless it is drifting down and one needs to be more constructive rather than the other way round.
Anuj: What phase are we in right now, you have seen so many market cycles, what kind of correction is this because in the last bull market corrections were sharp and swift and this time we have had almost a year long correction, the top was made in January ad we are in December grinding lower. How would you describe the current market phase?
Ratnesh: Current market phase I would think that in the near-term we probably have more downside simply because the market for the last six to eight months or 12 months, as you mentioned, has been searching for, looking for data points which will point towards actual recovery be it on the corporate performance or the overall economy. So, that is not been forthcoming and unfortunately the December quarter results which will be out in January that is not going to be something which is going to signal a turnaround, at best it can signal a bottoming out of earnings.
So, the phase of the market where we are right now is we are still in the consolidation phase. Potentially we are still in the drifting down phase but eventually there will be a point where the value will be apparent and there will be more positive liquidity which will be there in the market.
The other thing which is relevant for the market right now is that along with emerging markets, India is not the only market, all emerging market asset classes are seeing a sell-off and India is also getting impacted. So you see the foreign flows consistently being negative and that is a function of the fact that emerging market asset class is seeing an outflow as a whole and there is an element of negative impact because of that.
Sonia: What do you with individual stocks now because you have some great quality names which are sitting at 52 week lows whether it is Axis Bank , whether it is Larsen and Toubro (L&T), ICICI Bank and in the broader markets names like Bharat Forge , etc. Do you go out there and buy these companies or do you think that you can get better levels in the months to come?
A: It would always be very difficult to predict the exact bottom. As I mentioned, we could get the market drifting lower over the next month or two but within that context of which I think the areas to focus on will be areas where eventually when the market recovery and the economic recovery begins to be more visible then which are the areas which will benefit first from the market and within that banking sector will be front and center of it.
Clearly last week as you mentioned, it has taken a big knock, so gradually quality names as you suggested can be accumulated with a clear viewpoint in the short-term, in the overall market drift down they can get lower so the investments can be spread put, phased put to average out the price.
Anuj: How much lower for this market, we have seen 7500 now been tested for second time in the year, do you think thus mark will eventually give away and if yes how much lower for the Nifty?
Bala: We want to see the market break the September lows, if it does that in a counterintuitive way it will be quite positive because once the market takes out the September lows we want to see much more despondency come through for the market. We want to see the reverse psychology of what it was in beginning of March when it was 9100, there was hardly anyone saying that the market will go below 8000 barring one or two analysts like me. We want to see the reverse if the market were to go below the September lows. It is not a necessity for the market to break the September lows but if it does we are looking at the level of 7225 and we want to see the market psychic change to levels of 6500 or much worse figure or even call a huge bear market. We want to see that happen and if that happens the bottom will be very much in. If that doesn\\'t happen, if September low doesn\\'t get taken out, we have got to be patient for the market to take out the descending trendline that we spoke in the month of November, that is currently placed at about 8150-8200. If the market were to take out that without taking out the September lows I think even that will be a confirmation that the markets low is in and the uptrend has already resumed.
Sonia: This week or the week gone by was a great opportunity to short some of these PSU banking names, PNB , Bank of Baroda , SBI , they were all down about 6-8 percent. Is there further shorting opportunity in the week to come?
Bala: It is better off playing short positions from this point of time if you are not already short through Puts rather than shorting the Futures. I think there is little more downsides to come through for the banking index. If you recall from last couple of interactions, I had pointed out the frontline banking names like SBI and ICICI struggling under key resistance levels. I pointed out that ICICI was struggling under Rs 295 and SBI was struggling under Rs 265. So, these names are actually dragging the banking index. In fact the weak spot for the overall market is the banking names and that is the reason why we are seeing this drag. If 16200 on the bank index were to give in I think we are looking at something close to 15500 for the bank index.
Anuj: I remember every time ICICI Bank or Axis Bank used to fall 10 percent it used to be great buying opportunity and we always used to see that being lapped up. This time around we have seen consistently Axis Bank and ICICI Bank trading at 52-week lows. We are not even talking about PSU banks right now, large cap private sector banks, the high pedigree banks rolling at 52-week lows and that is where the big retail question comes in that these are quality stocks, if we are not making money here, if we are losing so much money here then what about rest of the market, what is plaguing private banks in particular?
Kumar: First up you have to look at the technical side of the equation which is not the technical charts but the flow side of the equation which is that the banking sector is clearly the largest sector in the market ad if you look at last few months you had consistent FII selling and the biggest proportion of FII money is in the banking sector within which in the private sector banks. So, some of the impact is because of FII selling. Obviously as that happened much of it will happen within the private sector banks in a proportionate basis.
Secondly for the sector right now it is grappling with the issue of historical NPAs which are there. Every time that you get news flow which can be adverse related to that then obviously you have an impact.
However, if I was to look long-term which is in 2016 and try to play out the whole year today sitting, you will have as you mentioned the quality companies, quality banks, they will find a level where they will attract value investing and much of that will also be triggered by when there are initial signs of recovery be it in the credit growth, be it in the overall economy and overall economic growth recovery or the hopes of recovery will also hopefully ease some concerns on the NPL side.
So, I would definitely not lose hope, in fact if the converse is true that if the banking sector doesn\\'t come back, it is going to be very difficult for the market overall to come back. So, I am fairly optimistic that 2016 for the market will be better than 2015, what the year that we are just ending and within that context I think banking sector has to lead the way. Whether that happens after one quarter or two quarters, that remains to be seen but banking sector has to lead the way.
Anuj: AS you know, we ended last segment on an optimistic note, so let us talk about some buy ideas. You have a buy idea in Havells ?
Bala: We spoke about Havells in the month of October too, but the stock has bottomed close to Rs 240 and done a pretty good job from those levels. The current decline in the markets is likely to present entry opportunity for people who did not make an entry closer to Rs 240-250. If the stock were to drop below Rs 290, somewhere between 290-275, that will be an ideal re-entry point for people who are already long, or people who missed the first leg of the move.
If the stock were to take out Rs 320 on a closing basis, it will be a confirmation that the stock is heading towards Rs 410-425.
Sonia: There was some news flow that we heard on Friday, with respect to an anti-dumping duty on stainless steel from markets like China, etc. and we have seen the metals space in our own markets see a bit of a rebound. Now, that some steps are being taken by the government, would you put any money into the metals space or would you still be cautious?
Kumar: well, because the horizon for which I am talking about investment is one year or plus, some of these specific news flow related things will have a fairly short-term impact on the market. Obviously, if that news flow is positive, it is known to have a positive impact, but fundamentally, if I look at going forward from here, I would be underweight on the commodities space. Still, it is too early to look for value there and these will be one of the trading opportunities which will come. But, rather, I would focus the portfolio more towards segment sectors which can benefit from potential recovery in the economy and the market.
Anuj: No earnings recovery yet in sight and we have seen the kind of impact it has had on the market this year. Next year, do you see this kind of pace continuing where the index does not do anything, or in fact, goes down further, but a lot of individual names will do well and is still a big bull market for – if you are right in terms of picking stocks, from a bottom-up stock picking opportunity?
Kumar: First important event will be the earnings downgrades have to stop. Up until now, what we were seeing is that the expectations have continuously been downgraded. Now, if you look at where we stand, FY16 is already down to 8-10 percent kind of an expectation. Now, FY17 and FY18, you are still – the bottom-up forecasts are 17-19 percent across the street. You still have a possibility of those numbers being downgraded. So, hopefully, that gets done by the time the December quarter results are out in January.
So, by the first quarter of the next calendar year is when I would expect earnings downgrades to bottom out. And then we can start a gradual recovery. So, purely on your question of earnings, when will the recovery be seen? I think the bottoming out will be seen in the January March quarter and the recovery a couple of quarters down the road.
Sonia: If you had to give us two or three strategies that one can execute for next week on individual stocks, what would your top buys or sells be now?
Bala: First look at the sell at this point of time. If you look at the auto sector, it is showing signs of considerable amount of correction coming through in the next week or so, so if you look at something like Mahindra and Mahindra, it has clocked a lower high in the last week. It is heading towards somewhere close to Rs 1,025-1,010. So, if you can place a stop above Rs 1,350 for Mahindra and Mahindra. I think it is a good trading in opportunity for this price objective of Rs 1,020.
And on a long side, if you look at something like Hindustan Unilever (HUL), we want to see it close above Rs 840. If it closes above Rs 840 in the next week, I think it is going to pick up considerable amount of steam on the upside and it is going to be the main stock that is going to take the lead for the overall market. We want to see the stock close above Rs 840 on a closing basis.
Anuj: Any midcap ideas apart from Havells that we discussed?
Bala: On the midcap space, you have got to be very careful. We had mentioned about Chennai Petroleum Corporation the last time. That is looking quite positive. You can place a stop below Rs 170. The stock is looking quite attractive for the medium-term, not for the short-term, so that is the reason why I did not talk about it just now. So, it is going to take about 6-8 weeks or slightly beyond that for the stock to achieve a price objective of about Rs 280 plus. But, it has put in a short to medium-term bottom and the price action so far is looking quite positive.
Happy Investing
Source:Moneycontrol.com
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