'If you have made good money, book profits'

'In the next one-and-a-half, two months you'll get decent amount of opportunities in the mid-cap and small-cap sector at lower levels.'

"When the market fell initially, the retail (investors) lost decently high amounts (of money). With the instability that comes with geo-political tensions leading to more fear, liquidity has started drying up," independent market expert Ambareesh Baliga expains to Prasanna D Zore/Rediff.com why the markets fell so brutally last week, what lies ahead and the trigger retail investors should wait for before investing their money again in the market.

The markets have been correcting since September 15 after hitting an all-time high of 20,222, but the crack in the markets has been brutal 10 days after the Hamas attack on Israel. What is the market worried about?

My belief is that the mid-cap and the small-cap side of the market, it had got extremely expensive.

The way we have seen those stocks moving up, we had a couple of multi-baggers in the last six-seven months. Normally you have multi-baggers in years. But in the last six-seven months, you've seen multiple multi-baggers and most of the stocks have given you 40-50-60 per cent of returns, which is unsustainable.

Now, it required a reason for the markets to correct.

And the reason came in terms of the Israel-Hamas war and the fear of that broadening coupled with US bond rate spiking to all-time highs. Along with that, the fear of oil prices moving up, which is a part of the Hamas war, and the last but not the least, the fear of supply chains getting disrupted because of combination of Hamas-Israel war and the falling rupee.

Every time when the market used to fall, the support would come from retail investors as well as mutual funds, because they also have retail money, which came by way of SIPs.

What happened now is that when the market fell initially, the retail (investors) lost decently high amounts (of money). With the instability that comes with geo-political tensions leading to more fear, liquidity has started drying up.

When I say liquidity dries up I mean that you may have liquidity, but you would not like to deploy it.

FIIs are pulling money out of India big time...

If you see the figures on Monday when THE markets fell heavily (Nifty fell by 260 points or 1.34 per cent and the Sensex fell by 826 points or 1.26 per cent). Look at the FII and DII figures. Both are positive. If both are positive and the market had to fall heavily, who sold?

Retail has sold. This shows they have started (panic) selling.

Otherwise there's no other reason for the market to come down on Monday. If not retail (investors, who sold then), what do you attribute it to? Both (FIIs and DIIs) are big buyers and typically you have FII selling and mutual funds buying or the other way around, normally.

Would retailers have so much heft to counter the buying by the FIIs and DIIs and make the markets fall?

The retail and HNIs are mostly (invested) in the mid-cap and the small-caps. And they had a brutal fall (the CNX Midcap index fell 2.7 per cent and CNX Smallcal fell by 3.6 per cent on October 23).

What we see on the index (Nifty and Sensex which are the bellwether indices) is not that brutal.

Going ahead, should retail investors be worried?

My suggestion is that from now onward, we will see some bounce back; it (the fall in the broader markets) will not be a one way street down. Maybe at the end of the downward move, you'll see a couple of days' major fall, and then it (markets) will consolidate at lower levels.

As of now, you'll see possibly a 200 point fall, 150 point fall on the Nifty, and the next day you will see a 50-75 point sort of a move up. Because at every fall, you still have certain people in the market who still feel that, okay, I was getting something at Rs 100 earlier, today it's at 75, so let me buy it, irrespective of the valuation because retail and HNIs never bother about valuation. They chase momentum.

If the stock is in momentum (quick gains in short time period), they buy.

So when you have seen 100, and today it's a 75, you think it's cheap and you start buying it because of which you'll see buying coming in; after a major fall, you'll start seeing some buying at lower levels, but that buying will continue decreasing.

And this buying will be from retail investors...

Only from retail, but that will continue decreasing going ahead. Because every time a person buys at lower levels, he finds that he's losing still. Because you're buying at 95, it goes to 85 and then goes to 60. So with that confidence level also goes down.

Overall, I see the market still correcting further. What happened (the quick rise in all major indices, more so the mid-caps, small-caps and micro-caps) in the last seven months was a bit overdone.

The valuations were overheated, overly expensive. So that has to be cleaned up to a certain extent.

How much more correction do you see in the market?

If you're talking about the Nifty, I see the Nifty settling anywhere between 18,000 to 18,500 level. We are possibly looking at another 5 per cent sort of a correction.

What about the mid-cap and small-cap universe? Will the fall in this universe be more accelerated?

If you notice in the large-caps, the move wasn't too much as such, although the stocks had become expensive, but they were not overly expensive. I don't see a major fall as far as the Nifty is concerned or the large caps are concerned. The pain is going to be the mid-cap and small-cap sectors.

Especially on the SME side of it; when I say SME, I'm talking about the SME exchange. People (investors in these segments) have gone mad. Except for your grocer next door and the raddiwala (one who trades in old and broken household items), everyone else is coming out with an IPO.

And those IPOs are getting oversubscribed heavily and, on top of it, opening at a substantial premium (to the IPO price).

People have made 500 per cent sort of returns in one week in SME IPOs. There will be a major shakeout (in the SME sector).

Most index heavyweights have declared their quarterly results. What sense are you getting from these results about the economy? Are you happy with the quarterly results so far?

It (the corporate quarterly results) is more or less in line. I don't see there are too many surprises as such, not too many positive surprises.

But let us not go by the earnings which have come normally in the first half of the earnings season. Typically the earnings are better because leaving aside the top hundred stocks, where they normally stick to your board meeting dates every quarter, irrespective of whether the earning is good or not, but when you come down the line (second rung companies) when the quarter is a bit poor, they tend to shift the date more towards the end of the season. So, typically you see a weaker result more towards the end of the season.

So let us not go by what has come already, but wait (for the remainder of the companies whose quarterly results are yet to be declared).

Major indices ended in the green on Friday after a brutal fall since October 18. Are we done with the correction, at least, in the near term? Is a short-term support in place or do you expect more correction in the days ahead?

We should see lower levels; maybe another five per cent (cut) in Nifty. I'm seeing the band of 18,000-18,500 on Nifty where it could consolidate.

Which sectors could outperform the broader indices going ahead?

I see auto, FMCG and white goods outperforming (the broader indices) to a certain extent. FMCG basically because of the election to the five states (Madhya Pradesh, Rajasthan, Chhattisgarh, Telangana and Mizoram) now (in 2023) and the general election coming (in April-May 2024), which means there'll be more money in the hands of the people and normally they tend to spend. So FMCG should do well.

What is your advice for retail investors now?

If you have made good money -- despite the stock market correcting from the higher level, if you're still making good money -- book profits.

Take some profits home because you require the liquidity.

In the next one-and-a-half, two months you'll get decent amount of opportunities in the mid-cap and small-cap sector at lower levels.

Would you have any levels for the mid-cap and small-cap indices?

If Nifty corrects 5 per cent, like I said, these stocks (in the mid-caps, small-caps and micro-caps and SMEs) can correct anywhere between 20 per cent to 40 per cent or maybe more.

That's when investors should think about entering mid-cap.

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