Expect a stronger equity cult in 2018: N Jayakumar, Prime Securities

In an interview with ET Now, N Jayakumar, Prime Securities, says as people feel more comfortable about putting in SIP kind of flows into the market, there will be a greater flow of funds to the equity markets. This is the greatest counter to any international event.

Edited excerpts:

What is your prognosis for 2018?
I am not a foreteller but I do believe that the equity cult in the country will become much stronger and most of us know that India as a nation is seriously under-invested from a retail perspective in the equity markets and as the reallocation of money from other asset classes, from fixed deposits, from real estate etc happens into the equity markets, the base will become much stronger than it already is.
We have seen the trickle becoming a much larger flow and people are now used to seeing money move into SIPs and arbitrage funds pretty regularly. I do not want to say a tidal wave as such, but much stronger flows will happen as people feel more comfortable about putting in SIP kind of flows into the market and that is the greatest counter to any international events and occurrences which may result in even larger scale equity outflows .


My own feeling on the FII money is that they have been net sellers for such a long period of time that it would not surprise me if they were to actually turn buyers at some point in the not so distant future. Given that they could at the margin turn positive and money from the Indian markets will and should continue to come through from the retail space. A combination of these two are making the underpinnings of the market extremely strong.

Can markets go only higher because of liquidity because ultimately liquidity has to act as a handover to fundamentals and then fundamentals have to take over. Is there a hope in the market that earnings will improve and are the higher frequency data points not indicating that a full bloom has started?
The way I see it is that a lot of money coming in does not need to go only into the secondary markets which is why you have only seen the indices getting gently nudged up.

Where this money is getting absorbed is a whole bunch of IPOs, new issuances, divestments, offers for sale. Even from te FII perspective, a lot of the sales that you get to see in terms of daily figures gets offset to an extent by their applications in IPOs etc which is the other side where the money is coming in.

New issuances, new offerings are taking up a lot of the slack or if not slack, the surpluses that the market is seeing. One thing is very clear. The government’s divestment and other targets will be met and probably exceeded simply because the flow of money is pretty relentless and I think so the good news in some sense is that the markets may continue to remain well underpinned and if there was any sharp drop, the money almost seamlessly moves out, from going into IPOs in terms to the secondary markets. But as long as the markets remains at inflated levels, IPOs will continue to attract money rather than the secondary markets.

We have always seen that in a bull market the sectoral leadership seldom changes and for the moment this bull market in a sense really belongs to NBFCs, HFCs and private banks. Irrespective of where the valuations are and what could be the trajectory of interest rates, do you think the market leadership will still rest with the Bajaj Finances and the HFDC Banks of the world?
It has already moved from that to other spaces as well. There are people who are hunting for value, who are looking at pharma, who are looking from a contrarian perspective are looking at technology. It is not fair to say that only one sector will dominate. A fair amount of money has moved into these spaces and my own assessment is that these spaces may not show a large scale move up from here but definitely you will have a situation where some of the spaces that are -- restructuring spaces, the infrastructure space, power, pharma, IT these will attract money.

So, the leadership changes ever so gently and I think it is the nature of the beast that there is catching up. Of course, we have not had a major disruption of any fundamental variable other than for instance oil, which is at an inflated level of $65 plus. Decidedly, we have bond yields that have moved up pretty sizably. We also have a situation where gold has started moving up. Maybe, the first signs of pushing the envelope for newer variables to come into play are happening and it will be interesting. Other than that, the NBFC space continues to do well,. Stock picking is still the way forward and so not much has changed over the course of the year but a lot could change. Some of these things like gold, oil and the strengthening rupee are anything to go by.

A month from now we will be talking about the Union Budget and it is uncanny but typically around the budget there is that talk again whether or not the government is going to tamper with the long-term capital gains tax. How is the market going to react to that? Is there reason to worry and what is it that you are expecting from the budget now that large part of the taxation is already taken care of with GST?
I cannot control changes in taxation, what will happen to major variables things are not predictable. There will need to be a compelling reason for the government to actually change taxation structures but were they to do so, I think it may be offset with STT etc. So I do not believe that there is going to be anything so disruptive that the underpinnings of the market will change.

Clearly there could be some sentiment. Just like most budgets in recent times have shown, Budgets are nothing more than few days’’ events and they are not things that last unless there is something very dramatic. I do not believe that budgets will change or alter the course of markets, they will at best be what I would like to call akin to a speed breaker on a highway -- unexpected but something you can tackle.

From now I guess the landscape of the market would change and you would keep a keen eye on what is happening on the political ground as well. You will have some critical state elections and then you have the big ones the 2019 general elections as well. Is that a valid concern because we saw that propping up when the GST collections dipped for a second consecutive month and the government did announce higher borrowings? Perhaps now the government is going to sing a more populist tune?
My assessment is that politics is a dark cloud that one needs to be aware of. Again, there is very little that investors can do. If SIP is the way forward for individual investors, I am not too sure if 2019 elections will be something they can factor in. I would, in fact, urge that most people who are into monthly investing should continue to do so notwithstanding what could happen there. It is possible that mid course corrections will happen and state elections may throw up surprises here and there. But, any sharp disruptions on the downward side is only a way for people to invest and if markets get overexcited, which I do not believe will happen with politics, than those corrections will also revert to the mean.

Politics at the end of the day become issues around which reversions to mean happen a few days later but it is not something that changes especially now that the landscape is pretty much clear. Things will change if there is a completely new equation at the centre. I cannot see it happening but if such a thing to happen, we will have to address at that point in time. I cannot see much happening between now and 2019 to warrant concern of an exceptional order.