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Buy on dips now to increase exposure in equities: Udayan

People have started rolling money into equities after a bull phase of 12-18 months which is an important thing, says CNBC-TV18’s Udayan Mukherjee. According to him, there will be temporary bouts of correction in the market over the next five to six years but that shouldn’t scare investors. 

Mukherjee recommends using the correction as an opportunity to increase exposure in equities. “The next three-six months may present the opportunity to people who were quite late in getting into the market,” he added.

Below is verbatim transcript of Udayan Mukherjee interview with Sonia Shenoy on CNBC-TV18.

Q: Good times for the market, the last couple of days have left you feeling a bit disappointed but the key question is what now?

A: Firstly, it is such a pleasure to be in Bangalore, when you come to cities like Bangalore, Ahmedabad, Jaipur you really feel that it is a bull market. Some other cities in India have not quite caught up to the same extent.

We have been to big cities like Calcutta where there is a big culture of investing into the stock market. But you somehow get the feeling that there is still a lot of left out kind of a feeling there. But I think in Bangalore, Ahmedabad, some parts of Rajasthan people have converted to equities far more swiftly than other parts of India which is very good.

It is good to see the numbers in the mutual funds that people are rolling into the equity market. That is going to be the dominant theme of the next five-six years. More than what happens in small five-six months phases you will get bouts of correction.

We have already started our phase of consolidation, our correction which was quite overdue and these will happen in the course of next five or six years. The most important thing to me is that people had such disaffection for this asset class called equities and that has changed.

To turn a switch in the head of people particularly people who are very rigid and conservative with their investing styles like Indians who tend to be big savers and that takes a long time to change.

It took 12-18 months of continuous bull market for that switch to turn on and now it is firmly on so we should not let this correction scare us. We will have some scary times may be in the next three-six months.

I do not think it will be such an easy ride some of the headwinds which we spoke about earlier have started picking up and now at least in the near-term you could count more headwinds than tailwinds. This may present a great opportunity for people who are still underweight on equities which a lot of people in this room would be.

I do not think everybody has got their exposure up to the levels that they would ideally like in a bull market. The next three-six months may present that opportunity to people who were quite late in getting into the market.

Q: We keep saying that this is the Modi led rally that we are seeing but if you look across the world the S&P Dow hit record highs, the Nikkei is at a 15-year high. Most global markets are doing well. Do you reckon that 2015 could be a year where globally equities as an asset class will do well?

A: It could, but it may first hit a few speed breakers, we should not be frogs in the well. It is important to understand that we have a government after many years which is trying to do many pro-business things and that is a very big tailwind for the stock market.

The stock market has priced that in to some extent. It is also important to recognise that while we are increasingly left reliant on global money and increasingly getting more reliant on the domestic sources of money which is coming into the stock market we cannot say that we are divorced from what is going on globally.

Interest rates going up in the US is a seminal event and so, you cannot say it will not affect us at all. We will just breeze through it and keep hitting new highs. So, in the headiness of being focused on our own economy for the last six or seven months we will be making a mistake by saying global events do not affect us at all. That would be a completely big error in my judgment.

So, these things will affect us. Now to what extent because of the India tailwinds which we speak about continuously that our macro is shifting for the better, earnings have not picked up but will pick up in two-three quarters hopefully, that there is a long-term story here.

Now will that long-term story make the bottom of the market higher than what it would have been otherwise in the event of a global correction, the answer to that could be yes to make it simple without taking about in jargon.

If India did not have such a strong story and there was a great global correction, may be the Nifty would have gone back to 7,000 or 7,500. Because of the strength of our story and the improving technicals, which is domestic investors coming back into the stock market we may have a situation where India outperforms but still slips and corrects from the current levels where we go down to 8,000 kind of levels and then spend a lot of time in 8,000-9,000 which is very acceptable in the course of a five-six year run.

But if that happens, it will frustrate a lot of people because we have just come in to the market expecting we will double our money every six months, every eight months. It is not that easy. It can never be that easy. So we may now be at a phase where the next six months may, if not be traumatic for the market it may be slightly frustrating in the context of how good things have been over the last 12 or 14 months. 

For full interview watch the accompanying videos


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