NBFCs and commodities to drive market rebound: Rohit Srivastava

Yes, we just tend to get happy too soon, too quick when you look at the markets, a mild bit of rebound, and you are really pretty enthused and kicked about it thinking that maybe things are actually turning for better. Once again, a down day now.
Rohit Srivastava: I do think things are turning for better. If you look at the last two-three days of price action in India and across Asia, what you will really witness is that most of the markets are resilient in the face of US-based news flow and volatility, which is partly because a lot of the selling in India and Asia was already going on since the month of October. In some parts of the world, even since June and July. So, many of the markets had already corrected. The US stock market is the last one to correct. Whatever the reasons may be, but if we just put it in the broader light of what has been happening, if there was a correction overdue in the world, it happened in other world markets first and it is happening in the US last and so that is why you are not seeing such a big impact of the US volatility now.

And therefore, we are slowly and steadily building up. Now, because you still have news flow, on a day-to-day basis yes you will get down days like today, even if I say that we have made the bottom at say 21,900-21,800 odd where we went to, can we really retest 22,200-22,100 again?

Now those are open possibilities. So, we can get a dip in the very short term, but we will probably make a higher low, that is what we should be watching out for the next few days.

If we do make a higher low than the low that we made last time and then manage to move up from there, that would be a very-very positive sign for the overall market.

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So, the turn has come, the large funds if you watch have already started to buy, especially those which were sitting on cash or sitting on the sidelines, a lot of them are already back in the market and so you will see that constructive move slowly building up in stock prices.
But also help us highlight which sectors do you believe can participate in the up move that is anticipated? Well, of course, the data and the levels need to be watched out for because it is a lot of sector churning that is underway. Today, the IT is taking a hit. But other than that, some of these financials are doing well and yesterday, we know the picture. Help us understand that which sectors are you betting on?
Rohit Srivastava: So, when we try to understand the sectoral outlook, what we should do is look for where the performance is actually happening because that is where the money is going. So, if we just take the last one month, the selling that started from the 5th of February, post the budget rally, when you started to see the market start come down, from then to date, which sectors have really held out? So, the top two sectors that actually show up is one, the financials.
And within financials, I actually find the NBFC is doing that. And the second is the metals, which is essentially the commodity related sector. These are the ones which come out right on top. And the ones that follow that are infrastructure and public sector stocks.

Now, these are all interesting areas to really be in. The financials are the only one which did not participate in a big way in the last two years of bull market, but they still had earnings growth.

So, in that sense, what has ended up happening is they have become an undervalued sector where a lot of the funds have been allocating their money.

Wherever fresh funds have been coming in, that money has been allocated there and that is sort of what is happening. So, the value buying started with financials, which is why you see that outperformance.

And probably, like I said, it will be NBFCs more specifically within that which are taking the attention.

So, there is growth and there is value, so that is the first one which probably comes on top. The second is metals. Now, metals are cyclical. They go through cycles based on what the dollar is doing, what interest rates are doing, and sort of some of the demand and supply scenario.

And we did see a good consolidation correction in metal prices, copper prices during 2020 to 2023.

But finally, it looks like the commodity cycle is picking up. Now, except for oil prices, you can see most other commodities, one by one, starting to participate on the upside. Copper has already broken out. We still to see something like that in aluminium.

But we are seeing in some of the agro commodities as well so that may even ignite interest in sectors like sugar, for example, which are directly related to the commodity price. But metals is the easy one. So, when we say metals, we are, of course, talking the entire basket. But the focus is specifically on aluminium, copper, which is the top two-three stocks out there. But eventually, it swings back to steel and other companies as well.

Even though there are tariffs coming out in that area, it essentially ends up lifting the underlying price and so in that sense there is a positive impact in that segment and so that is what you are seeing the outperformance for. The next one I would actually focus on is PSUs.

Now, even though there is infrastructure, a lot of the infra is also PSUs. So, PSUs, have seen one of the biggest beat downs after the outperformance last year. From July to date, the PSU index is down a good percentage, almost 20% or so and that has brought its RSI, which is a nice technical indicator to look at from a super high of 92 on the weekly charts to a low of around close to 30, so that is almost oversold. So, from extremely overbought to oversold is what you see in the PSE index do and that brings it back into the value zone.

So, the next place of value where money may go is PSU stocks. Now, you may not be seeing them outperform in terms of percentage gain, but they have actually fallen far less in the last one month so in that sense they show up in the top four sectors for the month.