Time to start allocating money in the market? This is what Ajay Bagga has to say

The second big factor is that the volatility has been very damped down in this period. Even on the days that the markets fell like the day before, we have not seen the volatility index (VIX) climbing. While the VIX for bond markets and the currency market is at multi-decade high, this time around, the stock market VIX has not really gone up. What that really shows us is that even though the fund manager sentiment surveys and consumer surveys are quite pessimistic in terms of the flows itself and in terms of the positioning in the option markets, the markets have been quite

and have held up quite well after the initial selloff in the first six months.

So the markets seem to be looking for a trigger to rally. Right now, I am still very cautious. I think that is a misplaced complacency. But who am I? It is the entire market which is kind of thinking like this. I am expecting very good months for November and December as seasonality is working. October to December is probably the best quarter for markets on an average historically.

The second big thing will be that post the November 8th US midterm elections. Republicans look like gaining at least the House, if not both the Houses of the US Congress; at least the House majority should become Republican with a lame duck president. That means no more tax hikes, limited fiscal, limited splurges, a lot of friction in terms of appointments of liberals to various posts.

So the market will welcome that stability. Markets have historically outperformed when there has been a lame duck president where the Congress is controlling the president.
So history and seasonality would be working and for maybe two or three months markets would rise but one correction would be due before one can call a durable bottom. When this kind of a bear market comes through policy interventions, it is like air going out of the balloon very slowly, unlike what we see in the technical bear markets.

You indicated in your initial remarks that you would wait for a big sizable correction for the market to give you an entry point. To quote Peter Lynch, more money is lost in waiting for the correction rather than when the actual correction occurs. So, a 10% correction may or may not come but a 30-40% downside? Isn’t it better to not wait for that correction?
I totally agree with you that the risk is lesser because global markets have corrected. We have really outperformed and the FII flows are coming back to India. So yes, in India, we should start allocating some amount of money but I would still caution that in a rising interest rate environment, we normally do not get markets which have held up as well as they have done in India despite the 140 bps rate hikes that have come in. It is without the FII inflows.

So largely because of the domestic retail flows which are going to stay as per all calculations by all mutual fund guys, we should be able to sustain those. So it is a flow driven market. We are quoting good fundamentals but they are deteriorating. Next year, even the GDP goes down by about 2% by the best estimates. Inflation is persistent, rates are high. All that is not making for a very strong market.

Who has made money over the last one year? One, the active stock pickers. Second, the SIP investors. The retail investors are coming off three years of making good money and even in a downward or sideways trending market, they made money.

Now going ahead, I am seeing that a global correction will come into India as well. We might get a mild correction in India and that is why I am being cautious. But definitely, quality stocks in certain sectors can be looked at and regular investments must be made.

Third, the investment portfolios must be kept as they are, I am not asking anyone to disinvest or go short. That is not this market but the global markets are looking very fragile. I do not think we have seen a complete correction in the global markets and any one event could turn them or it could be a slow move down. So at least till February-March, we should wait out in this market for a substantial portion of new allocations.

The other important thing to track will be a lot of these IPO companies because lock-in ends for the likes of etc. as well. What is your take as far as some of these new age tech companies like Nykaa, Delhivery, Policybazaar are concerned?
There are profitable and non-profitable companies globally. Also they have underperformed and we expect that underperformance to continue because your discount factor has gone up with the interest rates going up, it is a different environment; cash flow and positive cash flow is king now on balance sheets. So any lack of profits is frowned upon.

The day of the story is getting very limited and I expect more selling from the locked in investors to come in and markets have positioned accordingly to the extent they could by lightening positions. But there will be more selling coming with the lockups getting removed. So it is not a very healthy sign for these stocks. It will clearly be a grinding move up as they start making profits and deliver on their promises. Over the years, you will see the valuations come back. Otherwise at these interest rates, valuations will look very stretched.