The decline in raw prices, the cooling of the reference rates and the favorable turn of some other factors have led to a recovery competition in the market. However, we are not completely out of the woods, said CNBC-TV18 Consulting Editor Udayan Mukherjee in an interview with Moneycontrol Editor Santosh Nair.
He pointed out how the IL & FS news has simmered a little and with the fear that the NBFC space would freeze completely. "Now things have been dulled. The company is floating, it's not a shutdown mode," he says, adding. This has led to a sense of relief that is perhaps the worst behind us.
Credit problems still remain in the system and at the moment, he believes we are a bit of a rocking mode. "But we must be very vigilant for the next 4-6 months to ensure that some of these issues are not blown up. I'm not sanguine enough to say it's everywhere behind us," he said.
Mukherjee believes that investors now need to be more vigilant even in good business and "to be linked to certain sectors and shares can not be a good idea."
"I just want to leave that thought on the table for people who are long-term investors that maybe the world has changed a bit now and you need a little more tactical focus or a more vigilant focus on your portfolio," he said.
Q: We've seen a good recovery in Nifty over the past few weeks. Do you think the market may have bottomed out at the moment?
A: In the short term, 10,000-10,100 looks like a fairly stable place for Nifty from which the bouncing has happened. We are on our way to 200-day moving averages now close to 10,800. This is not just because of short circuit. It is also due to some factors that have changed around. First, the fact that crude oil has collapsed by 15 percent from $ 86 per barrel to about $ 73-74 a barrel, has been a major change for India. Therefore, as a coincidence or as a dropdown, we have seen that the reference rate also cooled from 8.2 percent to 7.8 percent. These two were the main problem areas for the market, how the bond market worked and how roughly occurred. And both have returned and withdrawn significantly, which is the source of this recovery raid we witness.
At the same time, we saw that the positioning had become extremely short in the octobre series after the big fall in Nifty and the short positioning has now begun to come down as we enter November and the long positioning has increased. So the market was in a sense very easy and therefore the opportunity to assume some long positions still remains, which says that the market probably will not find it very difficult to go against 200-day moving averages.
Now, when we get there, we have to lean back and take over again. Because then, many of the shorts will be out of the system and the market would have adapted to the decline in crude oil. And then we have to see if the global factors allow us to break this recovery beyond the 200-day moving agent, which is the technical resistance. Given that the market will run into the parliamentary term for 2-3 weeks after that, we must also find out.
So now we are in pullback mode. I do not think we're completely out of the woods, but the market is just factoring in some of the issues that have changed in our service over the past two or three weeks.
Q: You mentioned only two key factors. One was the bond market dividend and the other commodity. Specifically, on bond yields, do you see the situation changing anytime or things have really been cooled by it at the moment?
A: Things were very bad for a while and now we have had a bit of a hassle, because all this IL & FS news has talked a bit, telling people to provide it. There was fear that the entire NBFC room would freeze completely. Now things have faded a bit. The company is floating, it is not closed. Therefore, it has led to a sense of relief that it may be the worst behind us. Maybe it is. But believing that things are back to where it was four or five months back, that kind of liquidity in the system, that would really drive the case.
We are still in a very difficult situation with the entire NBFC bond market. Right now there is a relief and I think there is a good work that has happened from the supervisory authorities and from some of the stronger players to ensure we have no major credit terms on our hands. In that sense people keep a relief.
Now the point of all this is that after a bad phase the moment you see the first sign of stability, everyone rushes to say the worst is behind and now everything has been sorted. The gun jumps a bit. We have to wait and see how things are popping out. Credit problems still remain in the system and at the moment we are somewhat of a mountain sort of location, but we must be very vigilant in the next 4-6 months to ensure that some of these issues are not blown up again. I'm not sanguine enough to say that it is everywhere behind us. All you can say is that it's better than it was two months back. It is improving and we must keep our fingers crossed.
Question: What is your assessment of the overall macro situation? To go by car and two-wheeled sales for October, the numbers were not so inspiring.
A: Macroutmanings remain. It has been a bit of a residence permit, but the GST collections indicate that we will have a deficit on the budget deficit, which means that the government will not be able to spend its way out of trouble and it's a shrinking factor for the economy. On the other hand, we can be saddled with more taxes in the next budget. This is possible because of the GST shortage. The current account deficit is also a problem. The rupee does not significantly strengthen in the short term beyond one point. So those headwinds remain.
Now, in the last 10 days, things looked better, as crude oil is $ 73-74 per barrel. For some reason, as we saw a few weeks back if raw starts boiling and getting back over 80 dollars, all of these macro problems we breathe easily today back to the table again.
So macro is shaky, we're going through some of a breathing space right now, but we do not need to celebrate, we just need to search down and be very careful because things will be very volatile in the next few months. The macron is still not sorted. It can not be sorted overnight and we just have to wade through this phase and hope that no big global shock or a rough shock will not calm us again.
Q: So what have you done for your assessment of the result for the second quarter so far?
A: It has been a spotty revenue season. At the end of that win for Nifty or expectations for Nifty will be lowered again. There have been some positive surprises like L & T and some of the private corporate banks, there have been negative surprises from the telecom sector. But overall giving and taking, we will still have net net net profit by the end of the season.
It is not so important that the Nifty result comes down to another 2-3 percent by the end of the season. In my book, it will always happen that we started the year with 24-25 percent expectations of profit growth and now it has already fallen to 16-17 percent. We will end 14-15 percent increase in performance for FY19. Already, therefore, analysts look at FY20, where they will again throw it up by 25 percent and hope it miraculously comes together.
So we do not have big negative surprises on profit this time. We have had an up and down revenue season but we have not had a shed of an income calendar this quarter. So we do not have to be desperate about revenue, but we do not need to celebrate or be annoying. So, revenue is not what causes the delta in the market right now. The greater impulse or the greater driving power actually comes from macro, coming from the policy at the end of this month and it comes from global.
As I said in my last discussion with you, the result is always important in the medium term. But right now, revenues are somewhere in nobody's land. It's not good, it's not terrible and therefore does not cause the next big momentum. The bigger impulses are the three I mentioned – not necessarily in that order – macro, global and politics.
Q: You just mentioned the policy. So, how does the market react, let's say that the results are not so favorable for the government party?
A: It's not just a choice. You have three of them – big ones. So that's a combination of what turns out. The market becomes nervous if BJP loses Rajasthan. If it loses Rajasthan, but somehow succeed in scratching through Madhya Pradesh, the market will breathe a little easier. Chhattisgarh we do not know, it's too close to call I hear.
So it depends on how these three states actually turn out and the market basically comes to sit and say, okay between these three possibilities now we're presented with let's see what it means for next year's central elections. So it's complicated but all we can say is that we will know the day as the election results are announced and it will be a big day for the market I imagine. But right now it's the prescription for volatility out there.
Nobody knows how things will turn out. But the market is worried, it's nervous and it will therefore feed India Vix as we get closer to the election and the results date and it will be another factor to fight with. After the results, we will of course save and analyze these numbers and see what it means for 2019.
Q: In recent months, you have said that investors should clearly focus on capital protection or rather capital retention. So, how does a position take the portfolio as the year to end?
A: It's tough. As I said earlier, it also depends on your timeframe to some extent, because what can work in the next six months may not necessarily be what works in the next three years.
But there is another point that I want to mention this time. The general perception of the market has always been that you should buy good companies or what looked like good business and then keep it for a long time. There has been altruism on the market and I'm not saying it should be broken down. However, events over the past 6-9 months suggest that you probably need a little more tactical edge to your portfolio creation today because things change a lot. And if you do not answer how you look at any of these changes in taste then there is a chance that your portfolio will not work well. I'm not saying you should stop being an investor and becoming a trader far away, investors will always earn more money.
But getting married to certain sectors and stocks can not be a good idea. I will also give you some examples. If you only look at the beginning of the year, I do not even go back deep into history and you look the most at the portfolios of funds and professional investors; you would have found that the biggest additional burden was in sectors such as oil market companies, all had a ton of them, cars – everyone owned almost all auto stock. And you had some of these private banks. The cases began to change somewhere in the middle of the year and now we are saying that oil marketing has been the biggest asset deteriorator this year. cars, even large shares like Maruti Suzuki have lost 25-30 percent, forget about Tata Motors, which have been some of the largest banks and you've seen some of these private banks like Yes Bank, IndusInd Bank is definitely imploding.
So, you have to be a little wary event on good business and when the tide looks like it turns you need to make adjustments in the portfolio. So I just want to leave that thought on the table for people who are long-term investors that maybe the world has changed a bit now and you need a little more tactical focus or a more vigilant focus on your portfolio.
F: Congratulations on your debut novel, I enjoyed reading it. Just wanted to ask you where this was a story you would like to tell for a long time. Was there something that had been in your mind for many years or is it that you looked at some themes and decided that this is probably the best story to tell?
A: I have many stories in my mind. The stories come out after each other. I do not have your hectic life to deal with, I do not go to the office every day. I sit here in a very quiet place and therefore have a lot of time to keep up my thoughts and I thought of a story and I put it down and I hope it works for readers. I hope some of your viewers and readers will also get a copy and read the book and I hope they like it. But there will be more. I will not stop at a book, it was not like doing it for a lark, let me try my hand in a book. I enjoyed the process so much that I fully think about writing more. I hope that the books will be accepted by publishers and readers and I can continue to write. It gives me great joy and I keep my fingers crossing the first one. I hope the market space and reading space give me the opportunity to write more.