What is your CAKE indicator telling you now? Is the worst behind us and are we ready to bake?
It has been a very difficult year for markets because we had a very sharp unexpected break. But the way the market is behaving post that fall suggests that it was a break in a bull market and not the ending of the bull market. I am saying this because the market is ignoring bad news. For example, IndiGo came out with a horrible set of numbers and the stock is up 25% and is responding to good news.
For example McDonald’s came out with a fairly good set of numbers and the stock climbed 20%. A lot of stocks in the A group and B group has started making new highs. Now these kind of things typically do not happen in the bear market. They happen only in a bull market.
I am reasonably optimistic that the market will go back and test its original high of 11,700 maybe not immediately, but over next six months to one year, there is a good chance that we will make not only significant new highs in individual stocks but the index might go back and test its old highs.
You just spoke of Nifty regaining 11,700. What is giving you that conviction? I can think of 100 reasons why we may see more volatility or nervousness.
There will be volatility. I almost guarantee that. But the way the market is fighting back, I think when the Nifty went to 10,000 it tested it may be two-three times and then you observed how technically the market is responding. For example as I suggested to you that on bad news the stocks are now discounting it and moving ahead. For example IndiGo displayed a very bad set of numbers and yet the stock is up 20-25% from its lows. Stocks have responded with good numbers also finding favour with the market. Individual A group and B group stocks are making 52-weeks highs after the crash now that type of action does not happen in a bearish market. It happens only in a bullish market. So the technical evidence is pointing that at least we will go back and test the old highs of 11,700 maybe not right away, maybe in six months, maybe in a year’s time but I am fairly optimistic that the bull market that began five years ago is still intact.
You are saying one should not get scared of this fall and it may be time to get greedy?
I do not know about that but these are tough words to tell the public. In this crash, everything has been painted with the same brush. Everything has fallen 20-30% and even in the midcap, smallcap space, you may find some excellent companies trading at single digit PEs and over the next two-three years, there is no reason not to step up and buy. Would I get greedy about it? No. But as a rule, I am fully invested in the market and so maybe that helps answer your question.
What is catching your attention in the market? Are you buying the same stocks or diversifying a bit more?
It is hard question because I am going into the fall also. I was almost fully invested and did not have a lot of cash. But I sold some of my old holdings and am buying something new, beaten down stocks, adding to my original holdings for some other companies. There is no sectoral theme overriding what I am doing. I am just looking individually at bargains.
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