There could be many rallies in between, but those will be fake rallies. They will shake your belief. But the bull rally will not come back soon. The data shows that if market rallies continuously for five years, then the minimum time it takes to come back is three years. Sometimes, it never comes back. What happened in Japan? (where the market is yet to really recover from the highs it saw in early 1990s.)
In this market, where do you put your money?
In last five years’ markets valued companies that needed a lot of money for their business growth. Now the market will start hating them. When markets are dry, companies which need capital do not get it and this in turn affects their growth. That changes the fundamentals.
On the other hand, the market will support companies that do not need large capital to grow.
So, you are betting on...
We are positive on pharma and IT stocks. Also, we are quite positive on sugar stocks. It looks like a good global play. There could be high amount of ethanol sourcing from sugar.
Another interesting sector is oil exploration. India is still very under-explored.
And the sectors that are big no-no?
We are very negative on banks in India. In fact, banking is the dumbest business mankind can undertake. It’s one business where you do not make any money.
There is still plenty of downside to bank stocks. The market value of ICICI Bank and a few other private banks are now headed to their book value.
Overall, how will you allocate assets for an investor?
This is not time to be brave. Some amount of money, may be 30%, can be kept in equities, in some safe sectors.
One needs to be very cautious of India’s macro issues.
What’s your take on the primary market?
It may take a long time to see its revival. Typically, primary markets take another 8-12 months to become stable after the secondary market conditions improve.
What, according to you, is the most optimistic scenario for equities?
The prices of crude coming down to $75 a barrel. This cannot be ruled out. If the commodity bubble gets punctured, crude prices crash and steel prices fall that will be the best case scenario for the market.
And, the worst case?
If this commodity bubble keeps expanding... Political risks are another big problem in India. We are currently in a very scary situation. For the original bull market to come back, we need to wait for some time. A V-shape recovery (where the rise is as steep as the fall) is not possible.