This market great for disciplined investors, others are going to get hurt: Atul Suri – Economic Times

Gold & Silver

Very often when people buy something, based on the low price or on liquidity and not based on fundamentals and earnings, the ending tends to be bad, says the CEO of Marathon Trends.

The markets have moved 1%, 2% sometimes 3% on a weekly basis in the last couple of weeks. How long do you think this carnival will continue and who do you think will get the last ticket for the carnival before it shuts down?
I totally agree with you that there is a lot of euphoria and this is not just in India this is global. In the US, you have got this very big Robin Hood trade playing out. A lot of people are sitting at home and feel that they need to make some money and that reflects in the number of new accounts that are opening in India.

This month, we have had an index going up 5% but the FIIs, DIIs for the month both have been negative. One has to be very complacent of what is really happening and you would also see that the kind of stocks that are moving you will find that the small cap index has outperformed all the other, broad-based indices — be it midcap 500 or large cap Nifty. There is a lot of retail money there. As I said, people are sitting at home and they think that it is a very easy way to make money and definitely they are doing right now but these things end very badly.

The reason is that most retail investors do not have the discipline of sitting on a case of a stop loss. One has to be cautious and careful. The true test of how this smallcap trade plays out will be through a correction.

So, you have a market that is running away in some segments, but as a fund manager, you have to be very cautious and we are avoiding those spaces. There is a feeling of being left out but as I said, history has shown us that very often when people buy something, based on the low price or on liquidity and not based on fundamentals and earnings, the ending tends to be bad.

As I said, when the market corrects, we will get a sense of it. The only way the retail investor can get saved is if he has the discipline of a stop loss and unfortunately that is something which I have rarely seen.

Does the Bank Nifty run the risk of spoiling the party? It was the last one to join the rally and it is the first one showing signs of correction. On one side, you got a propeller called Reliance which is the humming engine which is trading the markets higher. On the other side, you have banks which are in a sense dragging the markets lower. Reliance alone cannot pull the market up permanently but banks collectively can do a larger collateral damage.
The Bank Nifty has been an absolute laggard and in India by virtue of the composition of the Nifty to offset the underperformance in banking, you will have to have another counterweight. It can be technology and Reliance for that matter. On bad days or when there is pressure on the market, you will find that the Bank Nifty is going to be the loadstone. It is going to be the one that really pulls the market down. For me, the level of 22,000 on the Bank Nifty was very important. Most others — the Nifty and Nifty 500, the smallcap — all have broken out but the Bank Nifty was hardly able to get its head above 22,000.

Again, the moment it dips below that, it is going to be a pressure point and the weakest space. So, a sector or space with the highest weightage is actually the biggest draw on the market and that is something which can pull the market down on index level.

At the moment, the market is going through a lot of contractions and there are many things that surprise us. The number of Covid cases are increasing globally but the markets are at highs, a case in point is Nasdaq at a life-time high. Some countries are surprising us with the upsurge. In our market, the outperformance of smallcaps is surprising and at an institutional level, we have net negative figures. There has been no return of FIIs. In fact, selling has been there in the last three to four months and just a trickle has come back. So there is a feeling of mismatch. Things are a little out of whack and do not seem as obvious as they are. But I guess that is the way the markets are and at the moment, a lot of small retail investors and small and midcap stocks are making hay. One has to see how this pans out when the markets correct and this is not just India, this is happening globally. There is a lot of money, there is froth and that is pushing the market up.

The true test will be the numbers coming out or the kind of narratives that come — how soon is the recovery, is this V-shaped recovery only in markets or is it going to be in the real economy etc. And as I said that only when markets correct when you get a real sense of where the water settles. So a little surprising, a little confusing at the moment but sooner or later I think this will get resolved.

One pocket which has really risen has been the PSU stocks, the likes of BHEL, BEL, BEML, Concor. The entire space is buzzing. What do you think is happening here? The government’s intent for disinvestment is very well known. But now they are going to go for distressed sales. They are going to sell gold for the price of silver. What is your reading? Is there a meaty trade here?
A lot of stocks that have beaten down tend to come up and one of the most beaten down sectors in Indian markets have been the PSUs. These are very cheap in terms of valuations and pricing. It is not that we are going to expect the earnings to improve. So, there is no major hope barring a few pockets.

The big play that is happening is a case of divestment and this hope of divestment keeps surfacing whenever there is some talk. But over the last 6-7 years, this government from day one thought this would be a priority area and nothing much has happened. It is a good trade. One has to be selective and even in the discipline of being able to exit as and when the party ends, is going to be important. It is not just that anything and everything that is PSU is good, is going to go up, is going to get divested, is going to have earnings pick up.

You will have to be selective but as I said that there is a lot of retail froth in the market and they love such stocks which are really beaten down and that is adding fuel to the fire. This is something you are seeing across sectors. So even if you see on a three-months basis, probably the best performing sector would be autos, apart from the small cap index. One of the least or underperforming sectors would be something like FMCG.

The market is gravitating on a hope trade. The feeling is that we will have a V-shape recovery and these stocks have been beaten down too much. So there is money that is moving into that space. But as I said it is only when we start seeing numbers and the narratives from managements and when markets correct, we will really understand how many of these still stand out and ultimately these stocks that stand out will be the ones that are worth a look at. Just getting into the froth or just getting into it because the prices are going up is very challenging. It is great for investors with discipline. Most others are going to get hurt.

Auto is a sector which is showing the first yellow weeds or green shoots whatever you may want to call it. It has come in Escorts, M&M and the tractor sales and the rural recovery is something that the market has really taken fancy to. Also, what is holding out is this entire move that is taking place in ancillaries. Would you be brave enough to stick it out of the tractor space and delve into passenger vehicles or some of the CV names or would you stick to where the fundamentals are sorting themselves out?
It is an interesting space. The whole rural theme is playing out and initial reports are that this is where the revival or the strong point in the economy is. So even in the auto space, one would have to focus on themes that are direct beneficiaries of this stronger rural theme that is playing out.

But as I said, do not look at markets on a three month basis. If we do that, we find that a lot of very differentiating signals are available. One needs to see the market in a longer term and you will have to see that post this beaten down or oversold rally that we are experiencing, where our companies are going to consistently perform and if they have corrected in this market, to get a better price for it. Sure you need to be locked into those spaces.

Look for disproportionate gainers emerging from this crisis: Atul Suri

Telecom is a clear winner and Reliance is a case in point and there a couple of other stocks also, says CEO, Marathon Trends.

Ultimately, we are not traders, we are trend investors and I still think that just buying anything just because it has beaten up because it is cheap is not a strategy we would like to follow. We like to ultimately look at those companies where there are going to be sustainable earnings in the long term and those are trends that will emerge for the next two to three years. So even in this rural theme, there are lots of stocks, lots of sectors that will benefit but once you get a sense that this is not going to be one or two quarter game and this is going to be a three to five year space, that is when it is worth putting your hat in. You have to be able to differentiate between a trade and investment.

With the recent trend of the rush of retail investors that are trying to get into equity markets directly and vis-à-vis mutual funds as well, where do you feel there is the best possibility for them in terms of protecting capital as well as assured returns. Would it be a defensive like IT or other preferred names in the consumer pie?
The times are very challenging because we have had a massive reset and not just a retail but even as professional investors, I keep telling myself it is not a matter of three months but three years which sectors are going to emerge much stronger. We are going to see a shift in market share. Just as after demonetisation, we saw some companies became stronger and larger and the rally after that was phenomenal, I think this is going to be another such event.

As an investor, I do not have perfect answers. We do not know how the end game is going to be but look at businesses which you think are going to be better off three years from now because in this crisis, a lot of businesses are going to shut down, a lot of businesses are going to give away market share.

If you ask family and friends around, you will realise that a lot of people are going to vacate spaces and who are going to take away that market share? I am looking at markets from a 3-5 years’ sense because I feel if you get logged into the right stocks or right spaces just as we saw post demonetisation, that will give you a bigger opportunity.

I would rather look at businesses, markets, stocks three years from now and because there is going to be lot of money to be made in that time frame. In three months, I do not know because good news, bad news, US elections are a lot of variables in the short term and they can upset all calculations. But with a three-year timeframe, there is no better time to do stock picking than it is right now.

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