The fall in prices of crude oil, the yield of bond yields and a favorable number of other factors led to withdrawal in the market; however, we are not entirely out of the woods, CNBC-TV18 Consulting Editor Udayan Mukherjee said in an interview with Moneycontrol Editor Santosho Nairo.
He pointed out that IL & FS news a little bit darker, and therefore the fear that the NBFC space will be frozen completely. "Now things are going to be a bit deeper. Business flows, it's not a state of exclusion," he said, adding that it had led to a feeling of relief that perhaps the worst was behind us.
Loan issues are still in the system and right now, he believes, we are in rescue mode. "But we have to be very careful during the next 4-6 months to ensure that some of these issues are not lifted again. I'm not shy enough to say it's all behind us," he said.
Mukherjee believes investors should now be more cautious even in good jobs and "getting married to certain sectors and stocks may not be good ideas."
"I just want to leave that thought on the people's desk that are long-term investors that maybe the world has changed a bit and you need to have more tactical focus or more attention to your portfolio," he said. .
Q: (L) We've seen a good return to Divan over the last few weeks. Do you think the market may be tired for now?
A: For the short term, 10,000-10,100 looks like a fairly stable place for Nifty from which bouncing happened. We are on the road up to 200-day moving on an average of close to 10,800. This is not just because of the short coverage. It is also because of some of the factors that have changed. First of all, the fact that crude oil collapsed by 15 percent to $ 86 per barrel at about $ 73-74 per barrel, it was a big change for India. Therefore, as a coincidence or a consequence, we saw that bond yields also decreased from 8.2 to 7.8 percent. These two were the main problematic areas for the market, the way the bond market behaved and how it behaved roughly. Both of them have returned and withdrew very important, which is the source of this withdrawal to be witnesses.
We also saw that the positioning became extremely short in the October series after a great fall in Nifty and that short positioning started to decline as we entered in November and the long positioning increased. So the market was somewhat light in some sense and therefore there is still the ability to take on some long positions, which tells me that the market will probably not be very difficult to embark on 200-day moves.
Now, when we get there, we have to relax and re-deploy. Because many shorts will be out of the system and the market would adjust to the crash of crude oil. And then we will have to see if global factors allow this to pull over a 200-day moving average that is technical resistance. Given that the market will compete in the election season in 2-3 weeks after that, we will have to also consider.
At this point, we are in the way of withdrawal. I do not think we're out of the woods completely, but the market is just factoring in some of the issues that have changed for our benefit over the past two or three weeks.
Q: You just mentioned two key factors. One of them was the yield on the bond market and other raw materials. Namely, on bond yields, do you see the situation changing at any time, or are things really cool now?
A: Things have been very bad for a while and now we had a bit of a break because the whole of this IL & FS news rumbled, people talk about it. There was a fear that this entire NBFC space would freeze completely. Now things have gone a bit deeper. The company runs, it's not a way to shut down. So it has brought a feeling of relief that maybe behind us the worst. Maybe it is. But thinking that things are back where they were four or five months back, such a kind of liquidity in the system, would really exacerbate the case.
We are still in a very tricky situation with the entire situation in NBFC bond market. There is currently some relief and I feel that there is a good job that has happened to regulators and some of the stronger players to ensure that we do not have the main credit default situation in our hands. In this sense, humans raised the relief.
Now it's all about that after a bad stage, when you see the first sign of stability, everyone wants to say it's the worst behind, and now everything is resolved. That's a little jump gun. We have to wait and see how things go. Problems with credit remain in the system and right now we are in some kind of rescue, but we have to be very careful in the forthcoming 4-6 month to ensure that none of these issues are raised again, I'm not sanguin enough to say yes It's all behind us. Everyone can say whether it's better than what was two months ago. It's an improvement and we have to keep our fingers crossed.
Q: What is your estimate of the overall macro situation? Moving by car and selling two wheels for October, the numbers were not all that inspirational.
A: The macroscopic challenges remain. There has been a slight delay, but the GST collections indicate that we will have a deficit of fiscal deficits and this means that the government will not be able to spend its way out of trouble and this is a factor for the economy. On the other hand, the next budget may have eight more taxes. This is possible because of the lack of GST. The current account deficit is also a problem. Rupe does not significantly strengthen in the short term above the point. So these vocals remain.
Now, in the last 10 days, things have been better because it's raw at $ 73 to $ 74 per barrel. For some reason, for whatever reason, as we have seen a few weeks back if the raw material starts cooking and returns over $ 80, all of these macro problems that breathe easily today will come back to the table.
So the macro is tremendous, we are going through a little bit of respite at the moment, but we do not need to celebrate, we have to shrink slightly and be very careful because things will be very unstable for the next few months. Macros are still not sorted. It can not be sorted overnight, and we just have to go through this phase and hope that some great global shock or no shock will creep.
Q: So, what is your estimate of income for the second quarter so far?
A: It was an uncertain season of earnings. In the end, where the German winnings or the expectations for the Germans will again be lowered. There were some positive surprises like L & T and some private corporate banks, there were negative surprises in the telecommunications sector. But all in all and taking we will still have a profit that will decrease net-net at the end of the season.
This is not so important the fact that Nifty's earnings dropped by another 2-3 percent at the end of the season. In my book, it will always happen because we started the year with 24 to 25 percent of earnings growth expectations and now we're down to 16-17 percent. We will end up with 14-15 percent growth in earnings for FY19. Already analysts are looking for FY20, where they will pile up to 25 percent again, and then they hope they will come together together miraculously.
That way, we do not have the main negative surprises on earnings this time. We had higher and lower earnings, but this quarter did not have a screaming earnings calendar. So we do not have to be desperate in earning money, but we do not have to celebrate or be happy. So earning is not what causes the delta in the market today. A greater impulse or greater incentive actually comes from macro, comes from politics at the end of this month and comes from global.
So, as I said in my last discussion with you, earnings are always important in the mid-term. But earning is somewhere in someone's country. Not great, not terrible and therefore does not cause the next great impulse. Bigger impulses are the three I mentioned – not necessarily in that order – macro, global and political.
Q: You just mentioned politics. So, as the market responds, let's say the results are not that favorable for the ruling party?
A: It's not just a choice. You have three big ones. So, that's a combination of what's going on. The market will be nervous if the BJP loses Rajasthan. If he loses Rajasthan, but somehow he can break into Madhya Pradesh, the market will breathe a little. Chhattisgarh does not know, it's too close to the call I hear.
So this depends on how these three states are actually coming out, and the market will basically have to sit down and say, right between these three options now that we are presented, to see what this means for next year in the central election. So this is complicated, but it can only be said that we will know the day when announced election results will be a great day for the market I imagine. But now is the volatility recipe out there.
Nobody knows how things will go. But the market is worried, nervous and therefore will feed the Indian Vix as we approach the election and date of the outcome, and will be another factor for the fight. After the results, we will, of course, stock up and analyze those figures and see what it means for 2019.
Q: In the last few months, you are saying that investors need to focus clearly on the protection of capital and the preservation of capital. So how does one position to portray as the year approaches?
A: It's tough. As I said earlier, your time frame depends to a certain extent, because what you can do for the next six months does not necessarily have to be what works for the next three years.
But there is another point I want to mention this time. A general view of the market has always been that you should buy a good company or what it looked like a good job and then keep it for a longer period of time. It was altruism on the market and I'm not saying it should be resolved. But events in the last 6 to 9 months suggest that you probably need to have a bit more tactical edge of creating a portfolio these days because things change a lot. And if you do not respond to how you look at some of these changes in flavor, then chances are your portfolio is not good. I'm not saying that you should stop being an investor and turn into a trader, far from that, investors will always bring more money.
However, getting married to certain sectors and stocks may not be good ideas. I'll give you a few examples. If you look at the beginning of this year, I do not go deep in history, and you look at most of the portfolio of investment funds and professional investors, you would find that the biggest additional burden was in sectors like the oil companies, all had tons, cars – all owned almost all car shares. You also had some of these private sector banks. Things started to change somewhere mid-year, and now we sit and say that oil marketing was the biggest destroyer of this year's wealth; cars, even large stocks such as Maruti Suzuki lost 25-30 percent, forget about Tata Motors who were some of the biggest niches and you've seen some of these private banks like Yes Bank, IndusInd Bank is absolutely imploding.
So, you have to be a little cautious about good deals, and when seawater looks like it's turning, you need to make adjustments to the portfolio. So, I just want to leave that thought on a table for people who are long-term investors, and maybe the world has changed a bit and you need a little more tactical focus or more attention to your portfolio.
Q: Congratulations on your debut novel, I enjoyed reading. I just wanted to ask you if it was a story you long wanted to say. Was this something you had in your mind for many years or did you look at a few topics and decided it was probably the best story?
A: I have a lot of stories in my head. Stories will come out one after the other. I do not have your hasty life to be involved, I do not go to the office every day. I sit here in a very quiet place and therefore I have plenty of time to get into my thoughts and I thought of a story and I dropped it down and I hope it works for readers. I hope that some of your viewers and readers will also take a copy and read the book, and I hope they like it. But there will be more. I'm not going to stop in a book, it's not like I'm doing it for scratch, let me try my hand in the book. I was so fond of the process that I was going to write more. I hope these books will be accepted by publishers and readers, and I can go to write. It gives me great joy and I keep my fingers on the first. I hope the market space and space for readers will give the opportunity to write more.