Monday Market Crash: Advice For Investors

'Such big falls are quite frequent these days, so do not try to time this market.'
'Use big dips to accumulate quality stocks.'

Kedar Kadam, director, Listed Investments, tells Prasanna D Zore/Rediff.com why the Indian markets saw a selloff frenzy on Monday, March 13.

The 50-stock bellwether Nifty fell almost 260 points (1.5 per cent), the BSE Sensex, another barometer of stock market strength, fell by 890 points (1.5 per cent) and why the most volatile of all the indices, the Nifty Bank, crashed a whopping 920 points (2.3 per cent) on the back of a banking contagion gripping the US markets with the collapse of the Silicon Valley Bank and Signature Bank.

"The reason why financials and banking stocks are getting sold off is because these sectors are highly owned sectors. You can check the portfolios of mutual funds or of PMS (portfolio management services) houses or of FIIs (foreign institutional investors) and FPIs (foreign portfolio investors) most of them will have highest allocation to the banking sector. That's one of the primary reasons (for the selloff in banking stocks on March 13)," says Kadam.

The markets are witnessing a selling frenzy in 2023 till date. How would you ask investors to look at this current market? What would be your advice to investors?

We expect market volatility to continue. However, the developments over the last three-four days are pointing that the Fed Pivot (the maximum the US Federal Reserve could hike interest rates from here) could be here. If that happens, we could see better days for markets for the rest of the calendar year 2023.

We do not expect strong returns this year. Our return expectations are moderate as far as CY23 is concerned. Yes, we would like to play this market and we are suggesting a 'start-buying' approach to our clients; we expect market volatility to continue and it will be very heavy volatility on either side.

That's how the market will pan out in 2023.

So as far as earnings growth is concerned, we expect next couple of quarters to be challenging for the companies across sectors but company-specific, there could be green shoots in some cases while overall we expect the macro trend to continue on the weaker side.

Nevertheless, 2023 will be a year of accumulation with moderate return expectations.

Given the correction that we have witnessed so far across companies, valuation multiples are making companies attractive from the long term investment perspective.

It will be a stock pickers's market going forward. It will not be like if this sector is working, then all the companies within this particular sector will start rallying.

We are in an era of receding liquidity so when the liquidity is down investors tend to be cautious in their purchases.

Here onwards, it will be a value pickers market.

What's driving this selloff frenzy in the Indian markets? The financials and banking stocks were hammered on March 13. Is the market worried about the US banking contagion -- with the folding up of Silicon Valley Bank and Signature Bank -- spreading to India?

The reason why financials and banking stocks are getting sold off is because these sectors are highly owned sectors.

You can check the portfolios of mutual funds or of PMS (portfolio management services) houses or of FIIs (foreign institutional investors) and FPIs (foreign portfolio investors) most of them will have highest allocation to the banking sector. That's one of the primary reasons (for the selloff in banking stocks on March 13).

Secondly, the global banking sector is going through a selloff phase and our market cannot be an exception.

Given the current valuation -- we are trading at almost 50-60 per cent discount to the peak valuations of the banking sector -- we expect the sector should get stabilised before it goes through some consolidation over the next couple of years

As far as profitability (of banking stocks) is concerned, yes, because of rising interest rates there will be pressure on margins (profits) of these banks.

So we prefer to stay with banks that are well capitalised and which have highest share of retail deposits in their books. In an environment where interest rates are rising, retail deposits will act as a big supporter.

What more pain points do you see going ahead? And are these pain points being discounted in the current market selloff?

Largely, I would say they are discounted. So for instance, before the event (the collapsing of SVB and Signature Bank) that occurred on weekend, most market participants were anticipating a 50 basis points hike by the US in its policy announcement for March.

However, with the fall of SVB Bank and Signature Bank, we believe the US Fed will do a rethinking as far as interest rate trajectory is concerned.

Inflation (in the US) is driven by supply side pressure rather than excess money supply.

For instance, in the US there is a shortage of labour and this shortage is driving the wages higher. While the Fed is committed to monetary tightening (sucking out excess liquidity from the market), these wage hikes are living more money in the pockets of the (US) consumers. That's the reason the US consumption remains quite resilient. The same scenario is true even for Europe.

Invariably, the real impact of hike in interest rates is not dampening consumption in these economies.

However, with the collapse of a couple of banks in the US -- and the fear of the contagion spreading further -- there is a 10 percent probability that the US Fed might not do excessive monetary tightening from here onwards.

In India, inflation still remains sticky and there is a risk to inflation coming from two main factors: One is global energy prices coupled with food price inflation could be a threat (to economic growth).

Add to that the threat of El Nino which could damage crop acreage and production this agricultural season thereby putting more pressure on food price inflation.

Where could investors find some solace in this market? Any sector, stocks where investors can look at say from a five-year investment horizon?

Rather than sectors we would like to bet on specific stocks.

Among sectors, we like cement, infrastructure; we see favourable risk-reward in the tech sector post the recent correction; even pharma, which has done nothing in last two to three years, is expected to do well.

For specialty chemicals sector one has to be really selective with the kind of correction that these companies have seen in last four-five months.

And any sectors to avoid

I think one should play very selective as far as the entire BFSI (Banking, Financial Services and Insurance) sector is concerned; there are some very good companies in the sector, but given the environment that we are in one would never know when we would hit the pole.

What would be your advice to retail investors?

One should not look to trade this market; engage in a staggered buying approach.

It's very difficult to time the market; the kind of market that we are in is totally different.

Whatever used to happen over weeks and months is happening in a single day (a fall of one-and-a-half per cent or more). Such big falls are quite frequent these days, so do not try to time this market. Use big dips to accumulate quality stocks.

It's not only Indian markets, but the world markets are going through some severe pain points: Receding liquidity, high inflation and then slowing consumption.

These are temporary phases. One could use these dips to add more quality stocks.

Disclaimer: The views expressed in this interview are Kedar Kadam's personal views.