market strategy: Traders & investors, here’s how to approach the market during the last week of the year
What we saw in the last 90 minutes yesterday, was it the start of a Santa Rally?
It is very difficult to predict the direction of the market in the short term. In the medium to long term, we all know it will be governed by the fundamentals and financials of the economy which, in India’s case, is likely to continue to remain growing and positive. So it’s going to go up, but in the short term, it’s still hard to say. But we must continue to answer the call. Leaving aside the last two days, we have seen a strong correction. After that, we saw a recovery. The market peak of 18,500 was reached in mid-October and from there the market attempted to move up three times but fell.
For now, it appears that global investor cash flow remains negative. So although over the past two days the market has risen, global flows were still negative. The quantum has decreased and at the same time there are no positive triggers in the market either.
The next set of triggers may come from earnings season which starts around January 10 or so. We have to wait and watch until then. Apart from this, no significant new political, economic or social developments are expected. At the same time, some negative factors have accumulated, Omicron being one of them. The possibility of a third wave of Covid is there and its severity will need to be determined.
Although oil prices have corrected from the recent high, they continue to remain elevated on an annual or even semi-annual basis. It is the same with the goods. So I would continue to be careful. At best, the market can enter a range related move, but it doesn’t look like it will break above the high of 18,500 in the immediate future.
When will the banks catch up? Why are they always underperforming?
Let me first separate the short term market movement from the medium term one. First of all, as I said, the short term movement is not clear to me. At best, this will be a range related consolidation move or it could correct further. In this scenario, it is very difficult for the banks to be the immediate participants.
This brings us to the medium to long term scenario. Assuming the market rises or stays limited, I would expect to outperform in sectors like capital goods and infrastructure, in IT, despite the continued outperformance they have shown so far, as well. as in real estate and related games. In the case of the BFSI sector, I expect it to remain at best in the market or continue with the underperformance we have seen for about 10 months.
Many specific sub-segments of banking have been overtaken by niche or boutique players and this is where the market started to focus in terms of money flow both in the secondary market and in the market. primary offer.
Leaving aside the post-listing stock price performance, IPOs of fintech companies attract a lot of money. Now, also in the secondary market, there are sub-segments such as gold lending companies, which continue to outperform. In my opinion, they will continue to outperform. The other sub-segment is made up of housing finance companies. Like I said, I am positive about the real estate industry. It’s also related to that. It is a space that greatly outclasses. I think banking interest seems to have shifted to specific sub-segments and pockets where markets expect good performance. For the bank as a whole, things are not falling into place right now. The market is still worried that interest rates will affect bank margins. In addition, the market is probably still concerned about some of the asset quality issues, especially personal loans and unsecured loans, credit card loans.
You talk about how people are avoiding the banking space, but as a recent comment from the SBI leadership shows, shouldn’t the trajectory be positive as the macro outlook improves?
If we take the last six quarters or so, after the start of Covid, the first quarters were suddenly bad in terms of the provisions that banks took in terms of sudden deterioration in asset quality and growth rates also declined in partly because the banks stopped lending or was very slow to lend intentionally and partly because there was no demand.
From there, we’ve seen a steady improvement in all of these metrics. The growth in loan disbursements is coming, we have seen asset quality improve and provisions having been taken earlier, we have also seen provisions decrease. Everything that was visible in the September quarter as well and will remain visible in the December quarter. The market is mildly concerned about rising interest rate expectations and the resulting margin or NIM pressure for one or two quarters.
Looking back to the recent market peak and for the previous period, the banking sector had continuously attracted the interest of domestic and global institutional investors, as well as the interest of retail investors. As a result, the banking sector’s weighting in the large cap, Nifty and Sensex indices had steadily increased and crossed over 30% and was in fact close to 35%. my numbers could be a bit here or there. We are now in a scenario where, for almost two and a half months, we have seen global investors sell while domestic investors remain buyers.
When global investors sell, they are selling stocks where there is liquidity, where there is greater market capitalization, and where they have been overweighted. So that’s another market phenomenon. As far as the fundamentals go, it has improved and maybe will continue to improve except for a couple of margin issues etc. but in the overweight areas, we have seen the interest of global institutional investors decline and cause the banking sector to underperform.
How to approach the last week of the year? This time of year is typical for thin volumes. For anyone looking for holiday cheer for their portfolios and trading ideas, what would be your advice?
Are we addressing specific sub-segments or market participants; are traders first – the underlying assumption is that they know their strict stop losses, they know their trading strategies and therefore should trade accordingly. New retail investors who don’t understand trading may have been successful in the recent past because it was a one-way market and they likely wouldn’t have been as successful in the past. last and a half months. So if they want to have peace of mind, they should avoid trading at least last week.
The second sub-segment of the market is made up of investors who would have continually felt left out of the market because it was going up one way and they would not have invested thinking that no market has moved up and become overvalued. They should certainly be investing some of the money now, more in the medium and long term, not the short term. The market may go down further and that is why I said they should invest some of the money. If it goes lower and they get back to work in January, they can use that money to invest more. If it doesn’t go down further, they at least have the satisfaction of having invested the money.
The third market segment is made up of people who were or probably still are heavily invested. If they want to continue to stay invested, they need to have a medium-term perspective. They need to stay invested and not worry as long as they have excess cash or other short-term needs.
Yet another segment is made up of those who are fully invested, overinvested, and who have remained invested without making a profit until now. They may need the money for shorter term expenses, including the vacations we are talking about. If they’ve invested early enough in the cycle, there’s no harm in taking money off the table. The rally of the past two days gave them a slightly bullish opportunity. For them, there is no harm in taking the money out and using it to enjoy the holidays and come back with a new mood in January, then analyze the market.