Man who saw the 2008 crisis coming, says Nifty50 to lose 10% in six months

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NEW DELHI: Despite back-to-back headwinds from demonetisation toTrumponomics and Janet Yellen’s future rate hike projections, Dalal Street has found a reason to cheer.

The benchmark indices managed to hold their head above water and stay above key support levels. But how long will this optimism last?

The benchmark indices managed to survive the black swan events in November, but if things turn worse, there could be up to 10 per cent downside in the market, Saurabh Mukherjea of Ambit Capital, indicated in an interview with ETNow.

Mukherjea, who is known for have predicted the global financial crisis of 2008 at least a year ahead, said: “Two things are happening in parallel, which make it that much trickier for the market: a) demonetisation, and b) the recovery in the US economy and Donald Trump’s election as US President.”

These two events together imply India could witness fairly sustained FII outflows going ahead.

“I do not think the full impact of demonetisation is appreciated by the stock market, leaving aside this quarter’s earnings, which will obviously be badly damaged by it. The March quarter, and potentially June quarter of next year, too will see demonetisation-related impact,” he said.

Foreign investors have pulled out more than Rs 19,500 crore from the capital market so far in December following demonetisation, a rate hike by the US Federal Reserve and a spike in crude oil prices.

FPIs have invested a net of Rs 27,600 crore in stocks so far this year, while they pulled out Rs 43,162 crore from the debt market, resulting in a combined net inflow of Rs 15,561 crore, data showed.

Domestic institutional investors (DIIs) have been net buyers in the recent past. They bought Rs18,277 crore worth of stocks in November, which was the highest in eight years.

“Over the next 3-4 months, DII flows could broadly hold up Sensex at the current level of say 26,000-27,000 even if FIIs sell. But my fear is that at some stage over the next three-four months, DIIs will become circumspect as to what is happening with respect to the economy. If they start pulling back, we could see up to 10 per cent downside in this market over the next six months,” Mukherjea said.

It has been long since the index has delivered in terms of a rally. It has proved to be stock pickers market, wherein individual stocks have outperformed the benchmark indices. The S&P BSE Sensex is up just about 4 per cent so far this calendar year.

The market is unlikely to perform at the index level, because a combination of weak economic growth, a fairly strong American recovery and a rise in American bond yields are going to pre-stall any runaway performance, Mukherjea said.

Historically, winning stocks have always come from smallcap and midcap segments over the past three to four years. “Most of the winning stocks in India have largely come from smallcap and midcap segments. I think it would be good to be a little bit circumspect over the next three to six months,” he said.

Commenting on the broader market, Mukherjea advised investors to stay cautious with respect to the smallcap and midcap stocks. “It is worth being cautious even on smallcaps and midcaps, leaving aside small pockets of export-centric stocks, such as pharma, and elements of manufacturing which have an export leg,” he said.

“We are facing a fairly tricky investment climate, as the economy slows down, specifically as the financial services sector gets into a degree of trouble on the back of demonetisation,” Mukherjea said.