NEW DELHI: Despite a sharp rise in stock prices in recent days, some equity investors have a lingering worry that the ongoing surge may be nothing but a bear market rally driven by Fomo, and the market may start falling anytime.
Value investor Ramesh Damani begs to differ. He insists a new bull market has begun.
The benchmark equity indices had crashed to multi-year lows in March, with Sensex plunging to 25,000 and Nifty hitting the 7,500 level.
Damani says he is confident the market will not revisit the March lows. “There is technical evidence to show we are in a new bull market. The March low will remain the bottom and the market will not test that level,” Damani told a webinar recently.
He cited four evidence to back his conviction:
- Many stocks are hitting new highs: Damani said many stocks from pharma, telecom spaces and even Reliance Industries are trading at new record highs or 52-week highs. Pharma sector has been among the biggest beneficiaries of the pandemic, as drug manufacturing was deemed essential, and hence, factories were not closed. Moreover, demand for formulations increased. Thanks to the heavy buying, pharma names like Dr Reddy’s Labs, Lupin, Aurobindo Pharma, Sun Pharma, Granules India, Cipla and Divi’s Labs that were struggling to perform till this March are now trading close to their 52-week highs.
- Improved market breadth: Damani also points to market breadth, which had deteriorated 2018 onwards, but has improved since March, signalling that the days of the bear market are being numbered. From 2018 onwards, the benchmark indices continued rising but smallcaps and midcaps did not participate in that rally. The buying was concentrated in select top names, leading to a skewed market performance.
However, since March 23, the broader market indices have performed in tandem with their headline peers. BSE Smallcap index has climbed over 33 per cent while the BSE Midcap index has risen over 29 per cent against a 30 per cent rise in BSE Sensex.
- Blue chips are falling: The February-March stock market crash had a distinct quality – nothing was spared, not even stocks like HDFC, Bajaj Finance and Reliance Industries, which are generally considered sacred. Damani feels big names falling like ninepins was an indication that the bear market that had started in 2018 came to an end.
Some of these names are still trading at historically low valuations. IndusInd Bank is down 70 per cent year to date while ONGC, ICICI Bank, Bajaj Finance, Axis Bank and SBI are down 30-45 per cent.
- New leaders of the market: Damani said his final conviction comes from the fact that there are new sheriffs in the town building wealth for investors. He pointed out that apart from pharma names, telcos have taken the lead of the ongoing rally.
Bharti Airtel is the biggest Sensex gainer this year, surging 25 per cent year to date. Vodafone Idea, which is battling debt issues, is trading at four times its 52-week lows. Jio, though not listed directly, has been in the news garnering moolah for its parent firm and taking the stock to all-time highs.
Even the pharma sector has seen some new leaders. Smallcap names like Shilpa Medicare, Dishman Pharma and JB Chemicals have come to the fore and are trading close to their 52-week highs.
With over four decades of experience in Indian stock market, Damani said it might look unbelievable to some people that the market has kept on rising when there is so much uncertainty and unemployment is rising.
“The market tends to look three months to 30 months ahead and discount the future. So it has discounted shutdown of closing, bad Q1 results in March bottom. Now when anything comes better than that, the market reacts positively. Unlock 1.0 was one of those news,” he said.
He likened the market movement in last five months to driving a vehicle. “When you see a car has stopped, you investigate what is wrong. Are there any parts that need changing or it is just that brakes have been applied? In the current case, it is the latter. Now when we are lifting our foot from the brake, the car is running again,” he said.