Market likely to top out by February and then go flat till election results are out: Ajay Bagga

Ajay Bagga, Chairman, Elyments Platforms, says: “Probably in the next three months, market will try to make up for what it has missed out over the last two years and give us pretty good returns and then become flattish to sideways to maybe mildly down-trending till the election results come in and the new government gets formed and then resume their journey upwards.”


What do you do with the private banking names and NBFCs like Bajaj Finance in lieu of the RBI norms now? Should this dip be bought into or would you want to wait it out?
I think we can wait out for some time to see, let the impact work through. I am hoping that the impact will be overdone and it will give a buying opportunity in very well-run companies with very strong business models.


RBI has increased the risk-weighted asset percentage to kind of mellow down the growth of unsecured lending. That impacts the business models or the business growth to some extent. We will have a better idea over the weekend once the sell-side brokers have met the managements and brought out their projections. Today has been an overreaction but we can wait out. There is no rush in this kind of market scenario. We will wait for a couple of weeks and let it work through and you will get an entry opportunity.

You follow global economics very closely. The kind of data that we have got from CPI as well as PPI globally, has got people to believe that next year, perhaps at the start of the year itself, we might be talking about rate cuts and there would not be a rate hike in December as was anticipated earlier?
Absolutely. No more rate hikes by the Fed. The ECB also has said that they would be on pause. I do not think you will get rate cuts before June and the biggest issue there is or rather the tailwind there is that the economies are growing much more than forecast, especially the US economy. So the last quarter projections for the US economy are at about 2.1-2.2% growth year on year, much higher than what was anticipated this time last year.

The good news is that 0 to 5% is done. We are not going much further, even in the worst case scenario, maybe one rate hike more by March in case the oil prices shoot up or the Middle East war extends out, expands out. Only then we could see the Fed or the ECB's hands being forced. Otherwise, we are very much at the peak of the rates which is good news.

Higher for longer, they are insisting that it will last for another two quarters. So around June is when we are expecting the first rate cuts from the Fed and maybe four to five rate cuts going into December of next year that is what we are expecting. The Fed's target of 2% will not be met till about 2025 unless there is a very strong economic contraction. That is not the consensus right now. The consensus is for a softish economy, not near any contraction or recession kind of numbers, but a softening global economy and fragmentation with Europe slowing, Japan slow, China trying to ratchet up but slower than this year, and the US continuing to grow well. India is providing a good boost to global growth with a 6% plus print in terms of real GDP.

What does this do to our own market? Are you expecting those life high levels to be hit soon given all of these headwinds which are there at the macro level seem to be now abating?
We will get this market to top out by February as soon as the last Budget is done with and elections are announced. We will probably peak nearer to that. Then two-three months of volatility as the new government gets formed and during that time, investors will be skittish and new money will wait out those two-three months.

Then comes June and we should resume. So that is a linear view. Markets will be much more lumpy, much more cyclical than that. But seasonality is working for us. Good macros are working for us. Probably in the next three months, these markets will try to make up for what they have missed out over the last two years and give us pretty good returns and then become flattish to sideways to maybe mildly down-trending till the election results come in and the new government gets formed and then resume their journey upwards.

Real estate as well as the entire home building theme has been a buoyant space. Just about everyone is now trying to figure out the new opportunities or ideas within that pack. One space which has done very well in lieu of all the construction, infrastructure development has been wiring and cable. Are there opportunities to add positions here?
Overall, how we have to see in a macro way, we are probably in the two and a half or third year of the real estate recovery cycle and the boom cycle. This goes on normally for seven to 10 years in a real estate cycle. They are pretty long cycles unlike the stock market cycle. What we are seeing is the growing ability of people to fund their housing loans.

The housing companies are able to give long-term loans which reduce the EMIs and increase the affordability and the market pricing having been correct. What has happened now is that most of the inventory has got wiped out. So a lot more construction will need to come in and supply will probably be ahead of demand, which is good news for the listed real estate players. We expect them to continue to do better.

The building material players are again on a good cycle. They are riding off this real estate boom. The construction and infrastructure companies with Rs 10 lakh crore odd of central government funding, state government funding and private capex still very nascent that will come through on Rs 11 lakh crore profit pool of private sector companies.

We used to see Rs 7 lakh odd crore going back into capex or renewal of their assets. That has come down to Rs 4 lakh crore. Post the elections and once the new government finds its bearings, we could see some of the sectors starting to invest in private capex and that will add a lot of traction. So industrials, construction, real estate, building materials are all looking good. Cement should do well.

Again, in cement, the overhang always remains of new capacity additions and how does the demand catch up to supply but we are seeing a lot of demand coming through. Six months down the line, we expect a lot more announcements and that should keep the cement players also bid up. So cement is also looking good on a one-year basis.

What is your sense on the pharma sector? And is there any specific name that looks positively placed?
I would not be able to give names, but in the pharma sector, a lot of attractive opportunities are now coming through. Firstly, in the US generics market, the revenue fall has plateau-ed off and we are seeing some amount of gains now coming in year on year. So, opportunities are there. Quite a few of the Indian-owned pharma companies that we like, hospitals have done very well. Those should continue to do well.

A lot of opportunities are there for further growth and for greenfield projects to come in. So, pharma in this kind of scenario that we are envisaging over the next one year should do well. It remains a defensive sector overall but given that it has been an underperformer, under-owned sector for a number of years, we see a short time turnaround coming through to pharma and some selective pharma are looking quite interesting and should do well. Hospitals as a sector is looking quite interesting and should continue to do well.