stock market strategy: is it time to start allocating money in the market? That’s what Ajay Bagga has to say

“In India, we should start allocating some money, but I would still like to warn that in a rising interest rate environment, we normally don’t get markets that have held up as well as they did. have done so in India despite the 140 basis point rate hikes that have come in. That’s without the FII inflows,” says a market expert Ajay Bagga.

It was a remarkable week for the global markets and the Indian market as well. What we got from the Fed was an acknowledgment that they weren’t done with rate hikes, but the markets ignored them?
Absolutely. Overall, the definition of pivot has changed since June. Markets were eyeing a rate cut in mid-2023 and that was the pivot. In August the pivot was set as there would be a pause and now markets are clinging to the pivot of a slower rate hike. So it has qualitatively changed.

The second important factor is that volatility has been very muted over this period. Even on days when the markets fell like the day before, we did not see the Volatility Index (VIX) climb. While the VIX of the bond markets and the currency market are at their highest in several decades, this time around the VIX of the stock market has not really increased. What this really tells us is that even though fund manager sentiment surveys and consumer surveys are quite pessimistic in terms of the flows themselves and in terms of positioning in the options markets, the markets have been quite

and held up fairly well after the initial sale for the first six months.

The markets therefore seem to be looking for a trigger to rally. For now, I remain very cautious. I think this is misplaced complacency. But who am I? It’s the entire market that thinks a bit like that. I expect very good months for November and December because seasonality works. October to December is probably the best quarter for the markets on average historically.

The second big thing will be after the US midterm elections on November 8. Republicans seem to be winning at least the House, if not both Houses of the US Congress; at least the majority of the House should become Republican with a lame duck president. That means more tax hikes, limited tax expenditures, limited splurges, lots of friction in terms of Liberal appointments to various positions.

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The market will therefore welcome this stability. Markets have historically outperformed when there was a lame president where Congress controlled the president. So history and seasonality would work and for maybe two or three months the markets would rise, but a correction would be due before a sustainable bottom could be called. When this type of bear market arises from political interventions, it is as if the air is very slowly coming out of the ball, unlike what we see in technical bear markets.

You indicated in your opening remarks that you would wait for a significant market correction to give you an entry point. To quote Peter Lynch, more money is lost while waiting for the correction than when the actual correction occurs. So a 10% correction may or may not come, but a 30-40% drop? Isn’t it better not to wait for this correction?
I totally agree with you that the risk is lower because global markets have corrected. We really outperformed and FII streams are coming back to India. So yes in India we should start allocating some money but I would still like to warn that in a rising interest rate environment we don’t normally get markets that have held up as well as ‘they made it to India despite the 140 base rate hikes that came in. This is without the FII inputs.

So largely because of the national retail flows that are going to remain by all calculations from all types of mutual funds, we should be able to sustain them. It is therefore a flow-driven market. We cite good fundamentals but they are deteriorating. Next year, even GDP falls by around 2% according to best estimates. Inflation is persistent, interest rates are high. All this does not make a very strong market.

Who has made money in the past year? First, active stock pickers. Second, SIP investors. Retail investors have just made a lot of money for three years and even in a down or sideways trending market, they have made money.

Now I see that a global correction will also come to India. We could have a slight correction in India and that’s why I’m cautious. But certainly, quality stocks in certain sectors can be sought and regular investments should be made.

Third, investment portfolios should be kept as is, I’m not asking anyone to divest or go short. It’s not that market, but global markets seem very fragile. I don’t think we have seen a full correction in global markets and any event could turn them around or it could be a slow decline. So, at least until February-March, we should expect a substantial part of the new allocations in this market.

The other big thing to follow will be a lot of these companies going public as the lockdown also ends for the likes of etc. What do you think of some of these new age tech companies like Nykaa, Delhivery, Policybazaar?
There are profitable and unprofitable businesses in the world. Also, they have underperformed and we expect that underperformance to continue because your discount factor has increased with rising interest rates, it’s a different environment; cash flow and positive cash flow are now kings on balance sheets. So any shortfall is frowned upon.

The day of history is getting very limited and I expect more sell offs from locked in investors to come in and markets have positioned themselves accordingly as much as they could by easing positions. But there will be more sales to come with the removal of blockages. So it’s not a very healthy sign for these stocks. It will clearly be a meteoric rise as they start making profits and delivering on their promises. Over the years, you will see the valuations come back. Otherwise, at these interest rates, valuations will look very stretched.


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