A fresh wave of selling. Does it seem like we could get back to the previous lows and the kind of rebound that one has seen in the broader markets in the last 15 odd days could be undone?
Not one of the best days to talk about markets as you highlighted it is a global inflicted issue very difficult to predict. We were all expecting the OPEC meeting to give some comfort on the global crude oil prices. However, the fresh sanctions on Iran has taken away a lot of these excess capacity production that was to come on screen. So, that is a risk which would continue to be there.
Coming on to the terms of the Nifty levels, we are reacting to that. We have an F&O expiry tomorrow so the volatility has increased but my guess is that the downside may not be there much in the larger caps. Midcap space is a story of its own where there could be some more pressure but in terms of the largecaps or the frontline indices, we are closer to the bottom. Maybe, we can remain at these levels but basically lack of triggers are something which is not helping us in terms of moving up.
If we saw how the market breadth panned out yesterday as well as how the smallcap index closed, it was down about 1% on the back of a yawning negative market breadth. Do you see things unfolding from here further? Is there a probability of greater downside risk?
If you take the case of midcaps and smallcaps, on an overall basis. the overall midcap index still trades at a huge premium to the largecaps. If you take the midcap index, they would be trading at around 19-20% premium to the Nifty.
On an overall basis, I do feel there could be some more pain in the midcaps and the smallcaps where a lot of the stock movements are sentiment driven rather than fundamental driven because liquidity is an issue with Indian markets. The lower we go, the higher the challenge in terms of liquidity. We have seen that FIIs have been continuously pulling out of the markets. A lot of these have been in the mid and smallcap space.
Coming to the mutual funds, the latest classifications of large, mid and smallcaps led them to also exit a lot of stocks. So the kind of support which the midcaps and smallcaps had enjoyed last year went missing and the pressure in the mid and smallcaps could be higher compared to the larger ones.
Motilal Oswal is one of the largest retail booking firms in the country. What is the sentiment of retail investors at this point of time?
There is pain and the retail investors are feeling the pain. A lot of them are in the mid and smaller names where the stocks have corrected between 15% and 20% and sometimes as high as 40%. The response has been that fresh inflows have slowed down. There are pockets where smart small retail investors are putting in money. However, the overall general response has been to slow down fresh inflows and some of them have started moving up to the larger caps based on our recommendations and the overall view of the market that things are looking a bit challenging on the macro level.
The only silver lining is that the expectation of an earnings recovery. Monsoon is expected to be good this year. Given an election year, we expect a lot of focus on the rural agri side which has been continuing for last few years by this government and looks to be further intensified in the run up to the budget.
A lot of these consumer names, agri related stocks have done well. We have been recommending investors to remain focussed on high quality, high earning companies. Some of the themes that we like are the rural and the consumer themes, Some niche spaces like NBFCs and small private sector banks continue to grow despite macro challenges.
How much of the currency fall is having you worried at this juncture because a large part of the IT and pharma interest was driven by the currency angle?
We have been largely an import dependent country and any depreciation in the rupee is negative for the economy as a whole. Right now while the outflows are also impacting the currency the crude price movement has a big factor to play in the currency movement.
While this is positive for some of the IT companies as well as some of the pharma companies which are exporting out of the country, overall I would be very cautious if this trend continues because finally it would impact the larger economy as a whole.