Question
We were just chatting with Ramesh Damani, who feels this could be a structural change and the beginning of a bull market. Do you agree?
Answer:
Fingers crossed. I think we are in the first stage. This is a typical short-covering phase. If you look at the speed of the rally, with an index moving 8% in a week, you have to go back a long way. The characteristics are also interesting: stocks that were at 52-week lows have driven the rally. The move began last month. Look at the IT index, which was the worst-performing index. It saw a sharp move last month, but there was no follow-through. In fact, it has been underperforming over the past week. Then look at Reliance. When have you seen Reliance move so much? The next day, there was no follow-through. Private sector banks have also seen some movement. Let’s see how long it lasts. This is typical of a short-covering rally.
Question
So, you’re not convinced?
Answer:
I’m not saying I’m not convinced. I hope the rally sustains. I’m very bullish and have very bullish targets. It’s just that the characteristics point to the first stage, which is short covering. After that, we will see where strength emerges, and that is when the sectors and stocks that can lead the market will become clearer. Right now, everything is a surprise. Reliance’s move, for instance, came as a surprise. Stocks with the highest short positions have seen the sharpest moves. That is why stocks at 52-week lows have bounced, while the previous market leaders have corrected. These moves may look good on screen, but they do not necessarily translate into portfolio gains. What matters for portfolios is the second stage. That is when you look for sectors and stocks that are outperforming and making new 52-week highs ahead of the rest of the market. That is when the big money is made. The rally has been a surprise; if we had been sitting here last week, the mood would have been very different. This is a short-covering phase. Its characteristics are typically visible on the screen.
Question
Now that phase one is behind us, and we are unsure whether phase two will follow, what should investors do? Is it time to take an aggressive equity call, or is it still too early to identify the leaders?
Answer:
We have been bullish on the markets, and it has been a long, painful wait. It has been a significant time correction, rather than a price correction, lasting almost two to two-and-a-half years. What you should look for are sectors and stocks making new highs. Look at what breaks out early and where leadership is emerging. At this point, the area I am most bullish on, though that can change, is financials. I am not referring only to large banks, but to a wider range of financial businesses. Look at some of the capital market stocks; the sector continues to strengthen. Pharma is another sector that has been among the first to break out. You can see the strength in the way pharma stocks are moving. Autos are also interesting, particularly if crude oil prices correct. Look at the auto numbers and the moves in these stocks. You cannot take a call based on one-day moves; you need to look at the larger trend. I have personally been very bullish on the Nifty and have maintained a target of 30,800. I have been saying it for a year and people have been skeptical, but I continue to believe in that target. However, I think we are still in the first stage of the move, which is short covering. The discovery of sectors and stocks that can lead the next phase is yet to happen. That is important because it is where investors can make money, navigate the market and build larger allocations. The recent move has surprised all of us, but the leadership that emerges in this phase will ultimately create wealth.
Question
We have seen a big short-covering bounce over the past week. A fund manager told us that while the market has rallied sharply, his portfolio has not moved much because the gains have been led by largecap stocks. He also made an interesting point about sentiment. Some large investors in the Middle East were debating whether to deploy ₹80–100 crore. Over the past week, the mood has changed and they now want to allocate the money immediately rather than wait for two months. Flows are gradually coming back.
Answer:
That definitely makes a difference. The index is a headline, and it affects sentiment and emotions. That is a great starting point. As I said, this is the first stage and is largely a short-covering rally. I think the second stage will emerge after a corrective phase. That is where the bigger, more sustainable and profitable moves could happen.
Question
Foreign investors may also look at their portfolios and realise that India has outperformed other markets over the past month, while they remain underallocated. That could start a cycle of money coming back into the market.
Answer:
If you look at the global rankings, you will see that after one week’s move, India has suddenly become one of the best-performing markets over one week, one month and three months.
Question
Suddenly, people are talking about India and asking why they do not have enough allocation here.
Answer:
Money chases momentum. If you look at global inflows, you realise that momentum attracts more momentum. You may have a strong 10-year story or a long-term economic growth story, but perceptions can change in a week. Ultimately, momentum begets momentum and attracts flows.
Question
What is the probability that the Nifty will reach your 30,800 target in the next 18 months? Some may see that as a 20% rise from current levels. But when we go back to October 2024, when the Nifty was around 26,000, the index is not much higher. Over the longer term, the target may not be such a big surprise. Do you think the Nifty could reach 30,800 in the next 18 months?
Answer:
I think so. Having been in these markets for many years, I have realised that markets never stop surprising. Two years ago, when we were sitting here, I was tracking around 40 global markets. In mid-2024, India was the best-performing equity market in the world, outperforming even the Nasdaq on a one-year basis. Korea was at the bottom of the list. Two years later, the whole picture has changed. Everyone was talking about the Kospi and wanted to invest in that market. Is anyone looking at the index now? Investors in those markets have had a very difficult time. The same thing happened with gold and silver last year. Everywhere I went, people asked for my view on these metals. Now, nobody is talking about them. Markets have a way of surprising investors. What happened last week did not surprise me. I remain optimistic and bullish about India, and I continue to hold my Nifty target of 30,800 despite the difficult phases. I held that view last week, and I hold it this week as well. People may have laughed at the target last year, but perhaps they are not laughing this time.
Question
Let’s talk about precious metals. When people look at the market, they say it is down, but gold has had a strong run. In rupee terms, it is still up around 10% despite the correction. In dollar terms, it has not moved much. What is your view on gold and silver for the year ahead? What levels are you looking at?
Answer:
I think both are forming a base. Gold, as an asset class, moves in phases. It can have strong six-month periods during times of significant global uncertainty, and these moves happen quickly. By the time people recognise them, the move is often over. We saw that last year. Gold can now enter a consolidation phase, and I think this is a good period for it to consolidate. Gold is not necessarily the best asset to trade because by the time you recognise the opportunity, the move may already have happened. It has, however, emerged as an asset-allocation play. More people have understood the importance of asset allocation, and two years of weak equity returns have given investors a reality check. Gold may move around a little, but I do not think it is set for another sharp rally immediately. If you are looking at it as an allocation rather than trying to chase the kind of rally we saw a year ago, I think this is a good time to build an allocation.
Question
And what about silver?
Answer:
Silver is also a proxy, but it is definitely more volatile. It is not for the faint-hearted. The beta in silver is tremendous, so it is an asset for a sharp trader. If you are looking at an allocation, I think gold is forming a base and offers a better opportunity. But if you expect to make money next week, I do not think that is the right approach.
Question
Historically, gold has gone through long periods of consolidation, followed by an upward move and then another peak. Are we at the beginning of a long consolidation phase?
Answer:
I think we are likely to see a long period of consolidation. It is difficult to say whether it will last for years; it could be a few months. As I said, sentiment can change quickly. Last year, people were interested in gold, while now many do not want to look at it. I think this is a good time to accumulate gold if you are considering it as part of your asset allocation.
Question
Can you give us a more niche sector rather than a broad category such as financials?
Answer:
I would look at the capital markets space. Some of the asset management companies and businesses with a broader capital market presence are doing extremely well. The interesting part is that we are all surprised by the SIP flows. Domestic investors have stayed invested despite two to two-and-a-half years of weak returns. Everyone thought Indian investors were foolish and foreign institutional investors were smart. I would argue that in three months, the Indian investor could look smart while the foreign investor may regret selling at a certain level if the market is substantially higher. A large amount of SIP money has been invested at Nifty levels of 20,000, 22,000, 23,000 and 24,000. If the Nifty reaches 26,000, many investors could be comfortably in the money. I see this as a powerful trend, and we are part of that broader financial space. I am very bullish on it. NBFCs are also doing well. As I mentioned, autos are another sector to watch. The numbers coming from the sector have been strong. Two-wheelers are definitely doing very well. There are also select opportunities in auto ancillaries and four-wheelers. Diesel-related businesses are another area to watch. There are three or four companies in this space that look interesting. If diesel prices cool off or correct globally, some of these businesses could benefit. They have taken a bit of a hit, but I think the space could become interesting. Pharma is a sector that is in a secular uptrend. Pharma is the first sector to have made lifetime highs well before the broader market. Some pharma stocks are doing very well, and the trend has been relatively smooth. If you are looking for a long-term trending sector, I think pharma is doing well. For a contrarian bet, I would also look at IT. I do not agree with the broad anti-AI trade, but some midcap IT stocks could surprise. We may not be in the early stages of large language models, where the US and China are leading, but when it comes to implementation and taking AI to the last mile, I think some mid-cap IT stocks can surprise. Even though the IT index has recovered only somewhat, some midcap IT stocks are doing very well. As a contrarian, higher-risk, higher-reward idea, I find select midcap IT stocks interesting.