Market Fall: What Investors Should Do

'Investors should continue to invest because you are looking at the long-term; in the next four to five years, we are bound to outperform (the rest of the world equity markets).'

Ambareesh Baliga is an independent market analyst with over three decades of experience in the stock markets.

Prasanna D Zore/Rediff.com spoke to Baliga to understand the route the stockmarkets may take in the days to come after last Friday's fall of 981 points.

How do you look at the fall from an all-time high of 18,900 to 17800? Is it a mere correction or have we entered a bear phase?

It is difficult to say if we have entered a bear phase or not. As of now, it doesn't seem to be. But this correction was overdue.

Even the last move which we made closer to the new highs (from about 15200 levels seen in mid-June 2022) seems to have been a vast difference between the reality at the ground level and what is happening in the market.

Anyways, the (interest) rates were going up, inflation was rising; there were signs of a slowdown. The second quarter earnings (July-September 2022) were not up to the mark, most of them were mixed.

Despite these conditions the markets moved up. One of the main reasons was again liquidity (from the foreign institutions as well as domestic investors).

SIP money (into mutual funds) was coming in. And as long as the markets are doing well, more (SIP) money comes in, and which is what was happening.

Has this 1,000-point fall impacted the flow of SIP money into the market?

Typically, I call SIPs as lazy money because (the flow of SIP money into the markets) doesn't normally change whether the market goes up or down.

When the market goes up, more and more people do SIPs, which is quite natural. But when the markets come down, there's a laziness to stop the SIPs. People feel that it is on, let it be on. A lot of people don't even know that they can stop the SIPs.

Whereas, if you notice, the bulk buying of mutual fund units has come down sharply. So inflows of SIP money into the market directly, or bulk buying of mutual fund SIPs as one-time purchase by retail has goes down.

Where do you see signs of hope for the Indian markets?

See, as of now, it seems to be more of a correction. But if it falls further then we can see levels closer to 17,000 on Nifty 50 index.

We were at a very good support on Friday at 17,800 which was a good support. And that's where we bounced from today (December 26).

I don't know whether this is a dead cat bounce (a term used by technical analysts to describe a rise of couple of days after a sharp fall in the indices) or if it is consolidation at higher levels.

So in case the markets fall below 17,800 again, we could see levels closer to 17,000.

And I do believe somewhat that that is very much possible -- at least in the beginning of January because that will be closer to the next year's Union Budget and FIIs also seem to be in a holiday mood (FIIs usually take a break from the market between mid-December and mid-January for the New year).

Can the Budget boost market sentiment in 2023?

Maybe the first half of 2023 may be lacklustre for all you know. I really don't expect any blockbuster sort of earnings (from Indian corporates).

The earnings in Q3 (for the October-December 2022 which will be out in January 2023), like what we have seen in Q2 (July-September 2022), will be more or less flat; maybe some of the companies may show slightly better. But mostly, I still see margin pressures and inventory losses being carried forward.

Given this lack of blockbuster earnings, how do you see the FIIs playing the Indian markets in the year ahead?

FIIs, for a while at least, won't come down in a big way given that we are talking of a slowdown to a recession in US and Europe. Then there is the scare of renewed COVID and we don't know how that will play out.

Although, everyone continues to hope that nothing goes wrong. But as long as it appears there, maybe people will hold their purse-strings tight.

So I don't really expect a major trigger in the first half.

As far as the Union Budget I think this is the last full-fledged Budget where the government can do whatever they want before the general elections. Given this scenario, it (the Union Budget) could slightly be on the populous side. But I don't see any major sops from the market perspective; don't expect anything on the capital gains front.

Anyways people have made good money in the last 30 months-plus. So there's no reason for the government to try and give any sops.

Whereas, there could be some sauce for the middle class from the income tax perspective; we could see the slabs going up a bit more. So there is some relief for the middle class.

But again, what we have seen in the past so many Budgets now -- maybe 10 years plus -- that the effect of the Budget -- good or bad -- doesn't last too long on the market.

And a lot of things now are outside the Budget and after the Budget.

What will be your advice for small investors who invest directly in stocks and for mutual fund SIP investors?

Mutual fund SIP investors, I would say, should continue to invest because you are looking at the long-term; in the next four to five years, we are bound to outperform (the rest of the world equity markets).

The rest of the global economy is likely to slow down further and India will be that bright spot outperforming the rest of the markets. The liquidity (FII as well as domestic money) naturally finds its way to those markets.

So, if not in the first half, in the second half of the year, we should see FII inflows. And we could be much better placed because of China plus 1 and now Europe plus 1 (a technical jargon meaning global industries from the US and Europe which are manufacturing out of China and Europe would look upon India as a major supplier to the world given the COVID scare in China and energy crisis in Europe due to Russia-Ukraine war).

And the focus of the government is also on make in India. So, the second half should play off well for the Indian markets.

We may see some global headwinds in the first half, but because of outperformance in the second half we could emerge as a bright spot.

Any stocks and levels to watch out for in the next year?

I would say because of China plus 1 and Europe plus 1, one sector which will benefit is specialty chemicals, which had a tepid 2022 even as 2021 was one of the best years for them. In 2023 they will bounce back.

Any stocks in these sectors that look attractive to you? Apart from specialty chemicals where else can one see value?

I am bullish on the auto sector and pharma to a certain extent.

In specialty chemicals I am bullish on Deepak Nitrite and SRF.

In the auto sector I like Maruti, Tata Motors, and M&M and among auto ancillariesI am looking at Samvardhana Motherson (earlier known as Motherson Sumi) and Exide.