Expect rally to continue, use dips to buy: Experts

The equity benchmarks continued consolidation for the second consecutive day and closed on a flat note on Tuesday.

KR Bharat, MD, Advent Advisors says for India in particular and for equity markets in general, the liquidity situation is likely to prevail for some time going forward. “So, I think this party is going to continue.”

He thinks days like today present opportunities for people to get back in.

He further says the earning season is unlikely to throw up any unpleasant surprises. “As long as the strength of liquidity continues, I do not think October is going to be a problem.”

However, Bharat still expects that big correction to come although not in the near future. “I have changed my mind now about the big correction, I am still very sure it’s going to happen, I just think it’s been pushed away into, let’s not say distant future, but certainly not in the near future at all.

Rahul Mohindar, viratechindia.com advices investors to stay long. “I wouldn’t read too much into this fall because we have seen quite a good recovery. We have seen it on fairly decent volumes.”

Mohindar thinks stock specifically there are several ideas even now on the frontlines where one can look at 5% to 10% kind of an appreciation with short terms. “So, clearly maintain the longs on the Nifty; 6,120 odd, the target we have been talking about, is still very much intact. Key support for this market, 5,970 is an important support level for short-term traders. So, those looking at this market with a week or two perspective, that’s a support level to keep in mind, even ahead of that. I think all put together it certainly makes way to stay long.”

Below is a verbatim transcript of KR Bharat’s interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy. Also watch the accompanying video.

Q: I remember the last time we spoke in the first week of September, the markets have pretty much blown the lights out since then. How much more of an upswing you think?

A: Let me start by saying that I think in this battle between liquidity and fundamentals, liquidity is the winner. That’s the way it’s going to continue for a while going forward. I have been racking my brains to figure out why, if at all, this huge amount of excess liquidity that’s found it way into equity markets in general and India in particular could or should reverse.

Apart from coming up with reasons like should there be another crises in the Western world, I cannot think of anything except actually economic recovery on the ground in the US and in Europe, which might move some of this money back from financial assets into productive assets as any cause for this liquidity to reverse. I personally don’t see that happening in a hurry. Therefore, I think this party is likely to continue. As you were discussing some time back, there will be corrections along the way, there will be minor spooks. But for India in particular and for equity markets in general, I think this liquidity situation is likely to prevail for some time going forward. So, I think this party is going to continue.

Q: Are you taking profits now or it is more prudent to not preempt tops and just keep riding the party?

A: What I have done I think I might have alluded to this in one of your earlier shows is the core portfolio, which is in long-term holdings, is absolutely intact. I am not taking profit on any of that because those stocks are held for a certain period of time for achievement of certain milestones, which maybe one-two-three years down the road. I don’t see any problem at the micro level in India, so those stocks are where they are.

The remaining part of the portfolio where as I have confessed, I was in cash until sometime ago has been shifted to more of an opportunistic kind of portfolio. There you keep taking profits, you keep waiting for corrections, and you keep getting back in because like I said I have admitted defeat at the hands of this whole liquidity boom. So, there you keep taking profits and getting back in and so on, but the core portfolio, absolutely not.

Q: There has been some bit of anxiety across the global set up in last couple of trading sessions, not too much, but would that concern you at all?

A: That has concerned me for the last eighteen months. I have not felt shy of saying so that concerns me even today which is why I started this conversation by saying that liquidity has been fundamental. It is very difficult to justify why markets are where they are today, globally, maybe less so in India. But even in India you could make a case for this market being expensive, certainly not cheap. But markets elsewhere look much more expensive. I think, therefore, that financial markets in general are highly prone today to any kind of shock that comes into the system.

I think, yes, there are plenty of causes for concern. I have been highlighting issues like Greece and Ireland and so on for almost 15-18 months. Those concerns have not gone away, those problems cannot be wished away regardless of who does the accounting jugglery. I don’t think the basic problem with the balance sheets of American banks has gone away. Fed printed trillions of dollar and that money went into the banks, but the real estate prices in that part of the world hasn’t gone up. Therefore, the intrinsic problem has still not gone away.

So, it is a very difficult situation we find ourselves in where excess liquidity is driving prices higher and everybody including myself is having great fun at this party. But as we go along and as prices go up and as time goes along, there are more and more causes for concern. But as I keep saying unless there is a huge disaster waiting for us around the corner, which I cannot see, it is going to be a while before that big correction that I was talking about comes to pass.

Posted in: Expert Advice