'If you see another 1000-point correction, people may start panicking.'
Independent analyst and market expert Ambareesh Baliga cautions retail investors about what lies ahead for the equity markets in this interview with Prasanna D Zore/Rediff.com.
For mutual fund SIP investors, though, he has this advice: The first thing which you decide when you do a SIP is: I will not try to time the market. Stopping the SIP would be timing the market. Continue with your SIPs.
As we enter a new trading week on Monday, October 7, what are the major worries before the market -- global as well as domestic?
Globally, clearly is a geopolitical issue (the Israel-Lebanon-Iran escalation). We'll have to see whether it escalates or not because October 7 also is an important date, which is the anniversary (Hamas had entered Israeli territory on October 7, 2023 and killed and abducted several Israelis).
I don't know if any action has been scheduled for that day (October 7, 2024, which is today).
Then you have the (RBI) monetary policy (the RBI Monetary Policy Committee meeting is scheduled between October 7 and 9), you have the election results (Jammu and Kashmir and Haryana on October 8).
There are a lot of things which can take the markets either way. But the biggest weightage would be to what happens to the (Israel-Iran) war.
If it is decently clear that it will not escalate from here on, then like what we have seen in the past, we can see a bounce back. But if not, if it escalates, then, I mean a fall from here can in fact take you to panic levels.
In case there is no fear, there's no more war mongering, do you think the market will only bounce back for a day or two or will it continue to rise?
It'll be more of a bounce back because last quarter earnings (April to June) also had fallen short.
We are also entering into a new earnings season (results for quarter between July and September beginning October 12 when Infosys will come out with its second quarter earnings).
Among other domestic worries, there is the issue of SEBI coming out with new rules with the intention of curbing speculative activity by small and retail traders in the futures and options segment.
Automatically, from Monday (October 7) and the days ahead you'll see the volumes going down as far as the F&O segment is concerned. That's the other negative as far as the total volumes are concerned in the market.
Why is it a negative?
People will buy and sell, but there won't be much speculation in at least in the futures and options sides of the market. But that's going to affect all the market participants -- whether we're talking of the exchange or whether we are talking of the brokers (both will see lesser revenues as the more people trade the more the revenues earned by the exchanges and brokerage houses and vice versa).
For most of them (brokerage houses), their earnings will suffer. Brokerages will take a hit (on revenues).
Whatever said, because of these (speculative) volumes (by small and retail participants which will now dramatically fall with the expectation that the Sebi rules star kicking in between November 20 and February 1, 2025), it gave the depth of the market, whether rightly or wrongly.
Whether they were making money or losing money, that's a different story all together. More number of participants means more depth. This (new Sebi rules) will mean lesser depth of the market.
You'll see possibly more volatility.
(Note: Sebi has announced a six-step programme to rid the Indian retail participants of their addiction to trading futures and options: Chief among them being increase in the contract size of Nifty options from Rs 5 lakh to Rs 15 lakh; reducing the number of expiries to just one per exchange per week [currently, there are five expiries ever week – that's one expiry per day of a trading week; speculation is immensely huge on expiry days as option buyers run after the greed of making 10 times their investment on every expiry day]; upfront premium collection from option buyers; and intraday monitoring of position limits)
How do you look at the correction that the markets witnessed the last week? Anything peculiar about this correction?
If this correction here to stay for longer, nobody can say. It will clearly depend on the outcome of the geopolitical issue more than anything else.
I wouldn't say there's panic as of now, but people have turned cautious.
If you see another 1000-point correction from here -- because nowadays 1000-point (up move or down move) -- isn't a big thing. Another thousand points (fall), and we may reach a level where people may start panicking because you should remember that people have not lost (big) in the last one week.
I mean people have lost, no doubt, but they've been losing for the last one month. Although the index was moving up, most of the stocks in the portfolios were underperforming.
Most of the people had loaded up stocks, which had seen solid momentum in the last six months. For example, there had been lot of buying by the retail investors in sectors like defence, PSUs, PSEs and banks and now defense has fallen 30 to 35 per cent. So it has started hurting individual portfolios.
So this fall (of the last week in the wake of West Asian tensions) is sort of another shocker for those guys.
Beyond this, if we fall further, panic can definitely set in.
When we talk of liquidity and all that, it's all about sentiment. If the sentiment is good, liquidity flows in. Liquidity also looks at factors like for every Rs 100 I'm putting in, am I making more? Am I making less?
So, every new hundred rupees you're putting in, if it's giving you Rs 90, you'll stop investing fresh and we might reach that point if the fall continues.
FIIs continue to sell big (the foreign institutional investors have sold stocks worth Rs 30,000 crore/Rs 300 billion in just three trading days of October last week).
When there was retail liquidity to balance FII selling (by domestic retail investors, mostly people who invest into mutual funds every month via SIPs), it was perfectly fine.
If retail liquidity stalls because of further market correction, and if FII continue to sell more because of geopolitical reasons (Israel-Iran escalation) or China (after China announced a $100 billion stimulus package to pep up its flagging real estate sector and stock market, many markets experts believe that FIIs are selling their emerging market exposure like India and investing in China expecting a higher return), whatever it is, it will affect Indian markets.
In the last couple of days they (the FIIs) sold Rs 30,700 crore (Rs 307 billion: Rs 5,600 crore/Rs 56 billion on October 1; Rs 15,000 crore/Rs 150 billion on October 3 and Rs 9,900 crore/Rs 99 billion on October 4) worth of stock in cash market.
If that continues, where does the market head? Market has to head lower because, fundamentally speaking, valuations are looking a bit expensive.
What is your sense?
Like I said, if it falls another thousand points, then I don't know. I mean, you can talk of 21,000 (the NSE Nifty closed October 4 around 25,000 level) levels or maybe lower. It could be quite drastic, especially when panic sets in.
When we talk about domestic liquidity, a lot of it is SIP money coming into the market. Do you think if it happens, SIP investors could become the last fool holding a leaking bucket?
Unlike in the past, when we used to say that SIPs will take time to stop, it will not take time now to stop because it's just a click of button.
What would be your advice to SIP investors?
If you are doing a SIP with a long term investment horizon in mind, continue with your SIPs. That's what is normally advised because at the end of the day, you are averaging out (especially, when markets continue) over a longer period of time.
The first thing which you decide when you do a SIP is: I will not try to time the market. Stopping the SIP would be timing the market. Continue with your SIPs.
But the investor psychology is such that when you start seeing that you are losing the every extra rupee you are putting in, then why should I invest?
Investors would think: The rupee staying in the bank is better than the rupee getting invested in the markets. The whole thing will reverse. That's the way the psychology works.
I'm talking of a couple of years back when a five-year SIP was also losing money. I think it was in 2017.
How would the Israel-Iran tension impact the already rising crude prices and its impact on the Indian markets?
Crude prices right now have risen basically on fear and not because of action.
If the action happens early next week, then the crude prices will still shoot up further and may remain higher for a longer period of time. As of today, we don't know. We can say that crude price has gone up, but it has gone up because of fear.
Crude prices could go haywire if, as what reports suggest, US and Israel attack Iran's oil infrastructure.
What would be advice to people who directly invest in stock markets, not those who SIP?
We've been asking people to get into cash all through (since last one year). Currently, we are 40 per cent in cash. I mean, before this fall, we were about 40 per cent to 50 per cent in cash in various portfolios.
Invest 5 per cent of your cash (if you are already sitting on cash) right now and keep cash ready for the time when markets crack big, if at all.
If the market goes down more, we are sitting still on pile of cash. We will buy more.
More from Ambareesh Baliga:
On January 19, 2024: 'New Investors Won't Digest Such Falls'
On May 10, 2024: 'Markets Could Crash 40%-50% If...'
On August 7, 2024: 'Made Good Money? Take Your Capital Out'
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