Is the bull market over?

love_gundu22

MP Guru


That's the question uppermost on everybody's mind these days because we have gone through major depression on the markets in the last one month.

And the experts are slightly divided on that question. While some experts are reluctant to call this a bear market, others question the phenomenon where more than 400 shares have hit new lows. However, experts CNBC-TV18 spoke say there's a huge buying opportunity as most of the valuations have become quite attractive, especially in the largecap and midcap space.

A CNBC-TV exclusive discussion with technical analyst Rajat Bose, Vipul Shah of Religare Securities, Ambareesh Baliga of Karvy Stock Broking and Investment advisor SP Tulsian:

Q: Historically track for us what are the factors that have led to a recovery in a bear market?

Ambareesh: Recovery in a bear market normally starts off with good stories, with some large investors getting into the market after finding the fundamentals cheap. In the last ten years we have seen they are large investors like UTI, LIC or the FIIs in the recent times and so basically we need large investors to get into the markets at lower levels and that in fact leads to recovery normally in a bear market.


Q: What do you make of the liquidity concern, because most of the fund houses, foreign brokerages have touted as current account deficit being the new road block towards fund inflows into the country?

Ambaresh: I don’t think there should be much of concern on that because if one looks at FIIs in totality, if one looks at the cash inflow and flows into the F&O space, then I don’t think there has been much of outflow in last 21days to one month.

Even locally I don’t think there is liquidity crisis or liquidity problem but it is basically a problem of confidence. People maybe sitting on cash but may not want to invest due to lack of confidence.

Q: Have valuation become attractive enough to enter at these levels?

Ambareesh: Yes, especially after the fall we have seen most of the valuations have become quite attractive especially in the largecap and midcap space and we have been asking our clients to keep buying at every lower levels as one cannot buy everything together. So at every level, just pick up 10-15% of your portfolio which is what we have been suggesting. Basically from 10,500 level to 12,500 levels we were asking people to keep selling at every rise. Now we are saying just pick up at every lower level because quite a few stocks are available at valuations when the index was possibly at 6000-7000 levels. So basically don’t look at the index, it could go to 9,000 or 8,500 levels, but one just needs to pick up value and sit on the stocks and wait for a while.

Q: What are you picks in stocks and sectors?

Ambareesh: I would possibly buy across all sectors and keep away from oil and reality plays. I would basically pick up IT, FMCG, metals.

Q: The poll - Is the bull market over?

Ambareesh: Surely not, I think this is only a correction in a bull market and if one is talking about a market for the next 6 months, then yes we are in the bear market. But for longer term, say next 1-2 two years, we are in a bull market and this is a correction.

Q: Is this bull market over? Historically track for us the technicals of bull and bear market, the time line they experience and the kind of recovery they make?

Rajat: Generally if we start from post liberalization scenario, then one notices that in the last leg of 1991 - 1992, Harshad Mehta bull market began. It began from 16th of December 1991 from a level of 1804 and continued till April 2, 1992 at 4546. That was one top after which we saw ferocity of fall and that fall continued for four months. From 4546 it came down to 2526 on August 6, 1992. Then the total bear market in1992 - 1993 ended in May 1993 when Sensex touched 1980, that is about 13.5 months.

From there we had a bull market that was the first FII led bull market and from 1980 it went up to 4643 in September 12, 1994. This was a bull market that lasted for about 16 months or slightly longer. This bull market when it ended, it did not fall ferociously; and that trend continued till about May 1995. That 4643 continued till about early May 1995 when it ended at 2805.

If you look at Ketan Parekh, the bull market continued till about Valentines day 2000; 6149 was the top and that lasted for around 16 months or so. The Katen Parekh downswing episode was from February 14 to about May 23. It was a ferocious downswing and around that time it came down from 6149 to about 3900 levels. After that it took quite a bit of time and the bear market lasted for a period of 18 or 19 months. But that is not the end of the story. There was a painful period of consolidation till about 28th April, 2003. The Nifty level of 21 September, 2001 was 849. In between Nifty went up above 1100 and again came down to 920.

Q: What do you make of the current trend we are witnessing in the market?

Vipul: If we look at the recent fall we have not fallen below 50% of the entire rise from May 2004. In my opinion when we see more than 50% erosion of the previous rise, that kind of a fall qualifies for a bear market, that level would be around 8500 level and I would not be in a hurry to call this a bear market , rather it would be called as a correction in a rising phase of the market.

Q: What do you make of the global cues and domestic cues; we are looking at this point in time? With interest rates being a concern globally, markets melting down across the globe and commodity markets also seeing a huge sell off. How do you position India in the midst of all these global cues?

Vipul: India was the best performing market in the emerging asset class. I agree that global cues had triggered the entire fall in the market which we have we seen in the last few weeks. Globally situation is little bit murkier and it would perhaps continue to be so for next few months.

Secondly the commodities have corrected to a large extent and that has triggered a lot of disruption in the emerging market portfolios. So as a fall back, a lot of fund managers have trimmed their emerging market exposure particularly to BRIC countries where huge amount of redemptions have been noticed. India was the one to rise faster than any other markets, so it came down faster than the other markets.

Q: Chartically are we showing any of those signs, are we showing any strength that we will bounce back from these levels?

Rajat: The point is that if you look at it as post 92 and post 2000 when the markets fell ferociously-- in each case it lasted for 3-4 months. I am not saying that this will also last for four months or so because the fall has been very steep. But the point is this that if you take a very wide angle view that you were looking at 10 years, then maybe this can be termed as a violent cyclical downswing in a secular bull market. If your time horizon is limited to a year or a year-and-a-half then definitely this is a bear market and a very strong one at that. With less than 40 shares hitting new highs and above 400 shares hitting new lows what kind of a bull market is this. The magnitude of the rise and the fall is so severe in the Indian market that asking people to stay put would be very dangerous because the portfolio could be eroded. Already we have seen erosion in the mutual funds to the tune of about 35-38% that is what is unnerving me.

Q: What would be your advise to the investors at this point in time? You were telling me that you were going to risk your business with the kind of advice that you were giving your clients at this point of time?

Rajat Bose: If every retail investor thinks that he or she is the best investor with best investing and trading skills then definitely come and participate in this market. Otherwise there are banks offering 8% interest as FD. Once I say that and give advise, I think I have lost my business there, atleast for some time. For the next one-year or so there will be rallies in between and rallies may last for few weeks in some cases but ultimately direction will be down and considerably there will be more pain. In 1995 and also after that this kind of good fundamentals did continue in the beginning but after that market’s apprehensions were corroborated by further economic development. So I am not certain as others are regarding the economic fundamentals remaining in shape.

Q: What are you advising your clients at this point in time?

Vipul: In our portfolios we are sitting on cash to the extent of 40% and we are also deploying strategies of hedging in our portfolios wherein we have bought put options for most of our clients. Keep in mind that painful period is going to last longer than what market and people are anticipating. But these markets in the long term are going to test the patience and definitely reward the conviction one would have in the fundamentals of this market. If one look at the post-falls, where we are in FY07 earnings, we are at about 14 times FY07 earnings. That is fairly attractive and it might come down by another 10% and that would make it still more attractive to get in with long term perspective and I would continue to do it at our end.

Q: We have spoken of long spell bear markets, we have just seen one-month of depression, is it time enough to qualify this as a bear market at this point in time?

Tulsian: I don’t agree with that, I can’t say that we have turned into a bear market because even if one presumes that we have entered the bear market then what can take it out from there and take the market to the bull phase, is the economic factors; if one sees the Indian economic factor, keeping aside other factors like interest rate hardening, current account deficit, exodus of foreign capital etc, we have a GDP growth of 8.4% for FY06, we are expecting a GDP growth of 8% plus. If one notices the industry performance of all the sectors then they are all reporting a growth of 8% plus and this is all on a sustainable basis except for the political uncertainties if those creep in. however, due to interest rate hardening, foreign capital has moved out leading to liquidity drying up and hence this pain or fall that we are seeing.

Q: You were completely gung ho about the India story and it is looking strong but look at the kind of mirroring that we are doing across the board and Indian markets are completely mirroring the global markets. Where do we stand at this point in time?

Tulsian: Infact there has 2-3 reasons which all got bunched together, maybe macro and micro. If you take the interest rate hardening, it has started with the FOMC increasing rates every time and now it has become very attractive for the investors to park their funds in 5-5.5% in the developed market economy.

Secondly there has been melt down in the LME market also which has taken a toll. Thirdly, our domestic market has been highly over leveraged, even the retails have been started participating by mortgaging or offering their existing security as a security for taking position on the F&O segment. I think that had the maximum effect and that is taking the toll on our Indian markets. One has to in fact bifurcate into two compartments what has all been the reason why we have fallen maximum when we have risen maximum in the emerging market that was because of our strong economic fundamentals which no one can dispute. But why we have fallen more that is because of the over leveraged positions at our end by investors at all levels.

Q: How do you build that confidence on the markets now because the India growth story at every level has been regarded as a strong one?

Tulsian: I think time is the best healer for this and one has to allow time. For instances F&O has now come on track because it was heavily over-leveraged but now the F&O losses are being financed by clients by offering their shares to the broking houses etc. There has been leveraged positions at bank levels, even they have disposed of. It likely to happen in 5-15 days. So probably one can take a call that whole of June we have to face this pain and by end of the month, this problem should be sorted out.

Q: Where do you find value in this market and which are sectors and pockets that you are looking at and suggesting?

Tulsian: I would advise the retail investors to focus on value stocks. Suppose I advise that your 50% plus investment or the total investable fund of the stock market should be in the frontline stocks because right now one is getting frontline stocks in a single digit multiple to about 15 multiple, which are very attractive. Secondly I would advise that one's investiable fund should not be more than 20% in the trading portfolio. In fact I would advise them to refrain from F&O space totally and keep 20% only for trading purpose and 30% should be in the midcap stocks and a smallcap and microcaps.

Q: Which are the value sectors?

Tulsian: I am positive on the retail sector, cement and sugar because sugar has taken a lot of beating. Other sectors like real estate, where SEZ could be a big factor, could take off and now in the current scenario and also capital goods.

Q: The poll - is the bull market over?

Tulsian: No.

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