Pankaj Vaish of Lehman Brothers has a view that midcap out performance may continue in future and regulatory action has instilled some risk premium. He adds that regulators have been fairly successful, rupee has stabilised. The flows have slowed down and people are looking at other alternatives to invest in Indian market.
Sangeeta Purushottam of Religare Securities sees some pockets of excesses in both large & midcaps and also sees pockets of fair rationality in some sectors. She thinks that investors were looking for opportunities outside large caps.
Excerpts from CNBC-TV18’s exclusive interview with Pankaj Vaish and Sangeeta Purushottam:
Q: What is your sense of this kind of divergent performance that you have seen this week? Do you expect that to continue?
Vaish: Yes, I think that is possible. The good thing about the markets now is that two-way risk has come back. About a month ago, it looked like the only way the stock market knew to go was up and that clearly is not sustainable. So, it took some regulatory action for the market to do a major seesaw.
But it has instilled some amount of much needed equity risk premium, saying that we have to be careful and valuations do matter. So, we are in that second stage where people should look at the specific name. They should see good valuations behind the name that they are picking. So, I think this is healthy. I think this is good that people are actually thinking of looking beyond the 10 or so names. The breadth had become extremely narrow all the way up and those are generally unhealthy markets. So, I take that as a sign of something a little more meaningful now.
Q: Do you agree because you could equally argue that some of the names that have gone up 25-50% this week probably do not have so much by way of value or fundamentals about them? Are you seeing any excesses in midcaps or are you generally relieved that the market is spreading out?
Purushottam: I think that there are some pockets of excesses both in the midcaps and the large caps and in some ways it is a slightly peculiar market that you see these pockets of excesses and also you see these pockets of fairly extreme rationality, where if companies have not done well, they have got deeply punished.
You are seeing both phenomenon sort of operate side by side. Overall, I am actually not really surprised that the action has moved to the midcaps. That is partly because the large caps had led a large part of the move that had happened in the markets and it was just getting very hard to find value or stories in the large caps. Also, we saw the regulatory action on the telecom sector take the zing out of that sector for a while; IT has been under a cloud. So, if we really look at sectoral stories amongst the large caps, they were getting narrower, which meant that you needed to look for opportunities outside the frontliners and simultaneously because the rally had been led by the large caps, there was value emerging in the midcaps. Some of them have done extremely well in terms of their results.
I think it was a natural shift and this is not really the first time that that has happened. We have often seen this that market action tends to get concentrated first in the large caps and moves into the midcaps and then moves back again and that is really the phase that we are seeing.
Q: What is happening from an FII perspective. Of course the volume of FII action has diminished considerably but do you think FIIs are also making some kind of switch between largecaps and midcaps?
Vaish: In that sense, I think the regulators have been fairly successful and what they set out to do and you can also see besides the numbers and in terms of FII investments on a daily basis but also in the rupee now stabilizing where it is. In that sense I think they have been able to be successful. FIIs are now in a strategic mode, trying to figure out what is the best way to access the Indian markets. So dealers like us are working with some of them in terms of the front door that Sebi had talked about; bringing in people through sub accounts and we are working on that.
In the interim as those solutions are put in place and some more clarity is sought from Sebi it is going through a process where the flow has slowed down to a trickle and we are looking at new alternatives in terms of bringing them in through the front door.
Q: How do you read this India out performance for the last few days, even on days when there is a fairly sharp global sell-off, India hardly blinks, how do you explain that and do you think this out performance is sustainable?
Purushottam: This is partly reflected of the fact that a lot of people believe that the India story is actually a structural one. So despite the movements that we see in other markets, overall we do tend to take cues from what’s happening overseas. But then that belief is really what keeps the out performance going. And that is something which is not just with a lot of the FIIs but its really also domestic money coming into play.
If we look at the numbers over the last few weeks, the strength in the market has not really been on the back of all the money, its really being domestic money. So the domestic investor today also believes that and here I mean non-institutional investor also. So there is a lot of liquidity, which is there domestic, retail money, HNI money etc, which is also supporting the markets. So that has a part to play in it as well.
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