Markets May Touch New Lifetime Highs Soon
It is surprising for many how resilient the markets have been in 2021. The advance decline ratio is clearly in favour of advances in 2021 and India VIX is at one of its lowest range seen in recent times. This clearly hints that there is no fear amongst the market participants and this momentum could continue in the markets. Having said that, one should remember that correction is part of the equity game and can be viewed as an invitation to buy cheap into the market which has every intention to reward handsomely to stock-pickers. The broader bullish structure for the market is intact and the performance of small-caps and mid-caps will ensure healthy participation from investors across the board. The rally in the broader markets is simply irresistible.
Do you want to know the most interesting aspect of the broader markets in the current market situation? In spite of a stupendous rally the mid-caps are still attractively valued and there are huge opportunities in small-caps even now. This can be viewed with the help of a ratio chart as well. The ratio chart of Nifty Small-Cap 100 index to Nifty 50 is still far away from the peak seen in the year 2018. Furthermore, catch up activity would continue to be seen in the Nifty Small-Cap index as Nifty Mid-Cap index is hovering around an all-time high whereas Nifty Small-Cap index is still trading nearly 7 per cent away from its lifetime highs.
I hope investors are taking note of the stupendous earnings season and the testimony of this is the result of Shakti Pumps. Record earnings and profitability have pushed the counter close to its lifetime highs. Investors should hunt for stocks like Shakti Pumps in the small-cap space where the earnings are expected to be outstanding. It is not an easy task at all, but it is not impossible. Apart from the small-cap space the consumption theme is gathering pace as we are now talking about unlocking India. In the previous instance cyclicals and banks outperformed, while defensives like IT and pharmaceuticals underperformed when the unlocking of economy took place.
It is advisable that you take a portfolio stance accordingly. A major development which took place on Wednesday was the announcement by the government to increase the subsidy on diammonium phosphate (DAP) fertiliser to cushion the impact of the steep rise in global prices. Farmers will get the subsidy for DAP fertiliser of Rs 1,200 per bag as compared to Rs 500 per bag. Our take hunch on a massive increase in fertilizer subsidy is that it is not going to be that beneficial for fertilizer companies because the government may take its own time to reimburse the subsidy so that the companies would stare at working capital problems, while on the other hand, it would be knight in shining armour for rural-related stocks simply because there would be more money in the hands of farmers.
And so to that extent this could be a positive income transfer to farmers especially so at a time when the rural areas have been badly impacted in the second wave of the corona virus and this is the government’s second big announcement in favour of farmers following the direct transfer of about 20,667 crore to farmers’ accounts under PM-KISAN scheme. Another news headline is the recent crash in crypto currency. The landslide fall in crypto currency has once again humbled investors and is a testimony to the fact that excessive returns in any asset class are not sustainable for long. The global markets have taken note of the crash in crypto currency and hence have turned risk-averse. It is only a matter of time before global investors and traders adopt a ‘risk on’ mode and get bullish on other risky asset classes such as equity. After some volatility expect the global markets to continue their forward march.
The performance of the power sector has impressed investors. The BSE Power index features amongst the best sectoral performing index both on YTD basis and in the past fortnight. Opportunities lie in the sector for investors. The market, while sensitive to the rising corona virus cases, is also factoring in the positive FIIs flows in recent trading sessions, ample liquidity, quality earnings season and the prospects of the economy getting back on the growth path in the coming few months. We believe the momentum in small-caps and mid-caps could continue and it can be profitable to bet on those stocks' ideas trading close to 52 week-highs. Of course, all the other parameters should be checked before taking any positional call.
