Mumbai: Vice-chairman and joint managing director of First Global Stock Broking Ltd, Shankar Sharma, spoke in an interview about his views on the stock markets, whether they have hit bottom and the outlook in the near future. Edited excerpts:
From the evidence of the last three months, are you ready to say that the bear market is over?
I think so. Again, as in markets, when the bear market started, even though one might have made a call that we were entering a bear market, you are still never sure till the price action actually supports your basis thesis. And for the price action to support that, you need it to be substantial enough for you to really start believing in your own thesis.
When the markets topped out at 21,000, till 16,000 there was still a chance that it was nothing but just a small pullback and would again go back and take out highs. But you know when it reached that level then one was pretty convinced this was the beginning of a pretty significant move and you know markets would head lower.
It is pretty much the same on the other side that till the markets reached, let’s say, you know prior to elections and my view has been this, that prior to elections there still existed a very significant risk that India would have decoupled negatively from the rest of the world had the election outcome been bad. The fact that it turned out to be good was a real positive.
But had it been bad we could have seen probably to limit down days just as easily as we saw the one limit up day. So you need price confirmation to support your basis thesis. Looking at the way the markets bounced have back post the budget correction—and globally, not just in India; that is really the big confirmation that one was looking for.
Had the pullback been very anaemic, very weak, and had the markets really struggled on the way back from the sell-off, then one would have been tempted to believe that look, it’s still just a bear market rally. But looking at the evidence on the ground that the numbers have been pretty okay.
The pullback has been very robust and today the markets really took out the range that they have been in since 18 May, which was 14,600 to 15,300-15,400 levels on the Sensex.
So, I think there is enough evidence now on the table to suggest that India at least within the emerging markets is looking at a new high in the next few months’ time.
Again, all these predictions are fraught with a lot of danger, are fraught with a lot of risk, but I would say the balance has shifted, the needle has shifted in favour of that happening rather than what I earlier thought maybe two or three years. It could probably happen in about a year’s time.
Where do you think we have a durable bottom in place now?
I think the current move probably takes us closer to 17,000 than to 13,000. I think 17,000 gets there before we get to 13,000. So, therefore, if you were to get to 17,000, then a 20% pullback doesn’t take you back to 13,000.
So, you see again, the further you go away from 13,000, or for that matter even 8,500 or 9,000, the less the probability of your getting there.
It’s not to say that all the risks are off the table or anything of that sort. There is one big risk, which I think we need to be mindful of, and that is the China risk.
You know, the rest of the world, India included, the mental pact we are all running on the hope that China will continue being what it has been, which is really a growth economy amidst a pretty dismal Asia landscape or global landscape.
The jury is still out whether China can be that. To my mind that is the big risk that the markets will need to deal with and be cognisant of, that China thing can unravel just as quickly as it has been built up.
Today, the risk for the bull is that the China story doesn’t play out as smoothly as we all expect it to, in which event you might see market sell-off very, very sharply. Don’t rule that out at all.
Do you sense enough momentum in the markets right now?
Now, it definitely does look that given strong global cues for the rest of the year, or at least even for three months, and remember what happens in six months elsewhere will happen in two months here. The Indian market is like a hungry buffet table.
Let this market loose on moderately positive news and it will do what it was ordinarily supposed to do in a year, it will do in a week and we saw that on 18 May.
So if the global environment is okay, and so far the markets have shrugged off all negatives and have focused on the positives—I say the big major risk is really China—if that were not to happen immediately, there is no saying why India can’t get close to the highs.
Having said that, do you have the conviction in the pit of your stomach that this is another multi-year trend which has started?
Looking at the tape, I think the momentum is very strong and it is not that as if all the risks are off the table, again you will keep getting higher and higher conviction as markets keep getting closer to sort of your original targets.
So let’s say this move takes us to 17,000, maybe a tad beyond that, and if it were to do that with great ease, you know then obviously it’s a very different picture.
But if it were to really struggle towards that end and you start to see a lot of discordant notes, then your view will obviously change. As things stand right now, the smoothness with which markets have fought back from the post- budget reversals, it does appear that one would rather be long rather than be short in this market.
Do you foresee a case in the next 6-18 months when you get back to the kind of momentum that we saw December 2007? Do you see that happening at all in the foreseeable future?
If you take out the highs I definitely think we will get there with that exact mindset. I think anything south of that level, we will still remain by and large as an investing class, moderately cautious.
And you know I always say this that there is no harm in being cautious. It cannot be equated with being negative. You have to be mindful of the risks of investing.
There is no such thing as no risks and which is why I always say that I might like a stock but I never forget that there is a risk that something may not turn out the way I think it will, or for that matter, the entire market.
So, like I said, there are risks still in this marketplace, nothing is off the table, it’s just that they have lessened considerably. We might get into an absolutely euphoric mindset but remember that will happen when we cross 21,000 and we get closer to 25,000 rather than our getting to 17,000-18,000.