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Market correction overdue; buy midcaps but slowly: Udayan

CNBC-TV18’s Udayan Mukherjee believes the Indian equity market is long overdue for a correction and despite some serious global negative vibes the market is not falling to levels that it probably should.

Quoting the US Federal Reserve’s impending rate hikes, the positive Chinese data and European markets, Mukherjee says one should be prepared to see some surprising trading calls.

On midcaps, that have been the flavour of this bull market, Udayan is now recommending caution.  

Also read: Retail buyers, MFs are back; midcaps hold promise: Ambit

While the midcaps can rally some more, most of them, he says, have run up more than they merit, to the extent that now it is worrying. Hence, he expects midcaps to see deep corrections if the market falls.

“Midcaps may fall 15-20 percent, but it won’t be too bad as many of them have nearly doubled in year-to-date. So, midcaps are still the place to be, but with caution. Buy them slowly and steadily, buy them on dips,” he adds.

Below is the transcript of Udayan Mukherjee’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Would you worry that globally metal prices have been falling rather steeply over the past couple of weeks? Are there any negative vibrations that you get from the global space?

A: There are a few negative vibrations. There is no question about that but everybody is talking about it and that tells me that perhaps is the reason why the market is not very keen to correct very significantly. It almost seems to have suggested a correction last week and you saw how quickly it came back. It went to 7,950, everybody started talking about 7,700 and before you know it, the market was back to almost its previous peak.

So yes, you could pick out a few things in the global space with what the US Fed is saying, with the new home sales data, the Chinese data which is coming in and the kind of refrain that you are hearing from Europe also makes you a little worried but everybody is talking about this seasonality. September, October is the time when you get a global dip.

The dollar has started moving in one direction, everybody is prepared and almost positioned for that dip and when everybody starts talking about something and positioning for something, usually the market frustrates that view and that positioning. I think that might be one reason why corrections have been quite shallow and even during the seasonal period where you often get a dip, the market is not obliging with that slightly deeper correction.

I was hearing a few comments from the previous speakers, people seem to say the market is fatigued now, FII buys have slowed down and this is the time when the market will struggle and we will get that dip. I don’t know whether something different might happen where the market takes out its previous high. The Prime Minister is in the US, some positive statements are expected to come in and the moment we start trading a couple of days above that 8,200 level, the whole commentary will change and people will say okay, we have taken out the high and now we are eyeing 8,400.

Be prepared for a few trading surprises in the near-term because so many people are calling for a correction. I think the correction is overdue, we have been talking about it for the last three-four weeks, but it is not coming, is it?

Sonia: We were speaking with Sandeep Bhatia yesterday and he was telling us that he doesn’t expect any major correction in the market but the gains from hereon will be nothing compared to what we have seen since the start of the year so be prepared for at best a 5-10 percent gains in the next 6-8 months because of the lack of any positive trigger. Is that your sense as well?

A: Six to 8 months is a very long time to predict and many important things will happen in the next eight months. Firstly, we have the Budget and this Budget, I think, will be important because it will either pave the way for some serious upside in the market in and around it or it will be a disappointment because expectations this time will be not as modest as the previous one because it was the government’s first Budget. If this one is a disappointing one, it may lead to a crack in the market because a lot of what is built into the price is some serious policy momentum from this government. I don’t think they can afford to present a very pedestrian budget in February 2015. That is one important pivotal event.

If you talk six-eight months out, we are also getting very close if not almost at the brink of the first rate hike in many years from the US Fed and I cannot imagine that will pass without any kind of turbulence one way or the other for the market. So six-eight months is a bigger call and I don’t know whether 5-10 percent captures that kind of momentous phase in the market. But just in the near-term, what you mentioned might be a probability whether the market sort of pauses and consolidates a little bit and it spreads out. In spreading out, you will probably find money moving towards quality and money moving towards non-index companies as well.

You have seen a bit of that happening already. In the last few weeks, IT, pharmaceuticals, autos have done well and that is typically associated with fairly high quality individual largecaps like Bharti , Zee , which are leaders in the sector, have started doing much better and the midcap segment has also done well. So, I think the domestic money, which is coming into the market might keep it supported and may prevent any deep corrections and may lead to the markets spreading out unless there is a big global event.

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