Metal stocks to benefit in a big way if China announces another stimulus: Ajay Bagga

‘Tractors and two wheelers will continue to do well as rural economy is in robust health’

On the defensive side, consumption, pharma, IT, communication are the big picks that are getting taken, says the Market Expert.

The financials are on fire today after a while. Let me also focus on Axis for a moment because while it is still largely reported but the buzz of Carlyle taking that substantial stake is perhaps firing up the stock today?
Yes, there is still speculation but it has been a brilliant day. There were a lot of shorts in the market; FIIs were heavily short both Nifty and Bank Nifty and we are seeing a very strong short squeeze happening in the market. So it is a good day for bulls like us. I am happy to see bears getting slaughtered. There is no explanation right now as to why the market turned like this. If you look across the banking counters, they are doing well but fundamentally there is no change. You will see a spike in NPAs with the economy being in trouble. That is very clear. Has all that been factored in and is there something new coming across? We will come to know but today we are just enjoying and are happy to see a day like this as investors.

For the longest time, we have argued between fundamentals and Fed. Do not fight the Fed and ignore the fundamentals and for those who are following this very simple principle are the ones who are making money. So who is the smarter man? Someone who is sticking to basics or someone who is over-analysing the economy and the markets and valuations?
If you have made the money, you are smart. That is all it comes down to. These are crazy markets and there is no reason for the Bank Nifty to be going up 7% today; there is no fundamental change. Even if you look at how the positions were; the FIIs were hugely shorting this market. I would say this is more of a short squeeze. You have reached a level where stops got triggered and everybody wanted to get out of the building and that is what is happening here. Are the markets disconnected from reality? Definitely on a global level, they are. As you mentioned, the Fed has put so much stimulus. What was put over 18 months in 2008 got put in the first month this time around. There was a note by an ex Lehman person that $15 billion was all that they needed for JP Morgan to rollover that night over that weekend and JP Morgan refused and the rest was history and Lehman Brothers went down. He says if in September of last year, if the Fed had not put in $75 billion in the overnight market, there would have been multiple Lehman. So even the collective memory of the central bankers has enhanced from the time we started talking more than two decades back. They also realised that doing things early and moving very decisively is good.

Today what changed for Asia in the morning was looking like a very lacklustre boring day and we were expecting a boring expiry and looking at eating some premium. What changed was the Japanese stimulus coming in. What changed over the weekend was the news of China talking of more interest cuts and more stimulus. And the Japanese stimulus changed the Nikkei move and that seemed to come through to our markets. But I am very mystified today. I am very happy as an investor. I am a perma bull but I have been very wary of these markets. Last time also I said I am not liking the markets and they are totally decoupled from the economy. As and when this catch up happens, we will have a lot of pain but I will take today’s gain. Why should we worry as investors? I am happy to make the gains today. But ask for an explanation; Japanese stimulus and a lot of shorts in the market caught on the wrong foot. I do not know who did the early buying but then it became a momentum of its own and stops got triggered at 400-500 up on the Bank Nifty and then you saw such a huge short squeeze coming through in the market.

The consumption story has been looking strong. Which are some of the other pockets of the market where you have been scouting perhaps for opportunities at lower levels?
There will be some amount of correction in the market around July when this quarter’s earnings start coming in. Just to give you an idea, in the US, there is an expectation of a minus 40% dip in earnings growth year on year. In India, the analysts are yet to come out with the post-Q1 results. So we will have to wait but there are two ways of creating a portfolio in these times. One is on the defensive side, which most of the market is doing; consumption, pharma, IT, communication are the big picks that are getting taken.

On the contrarian side, there are the cyclicals and if there is a Chinese stimulus and Chinese infrastructure spending, metals will be a big beneficiary. We have seen metals moving up and we have seen cement getting bid up. Another thing that can be looked at is auto. I think with the rural economy being in fairly robust health, tractors and two wheelers will continue to do well.

We are not very sure about CVs. The government has been talking about the scrappage policy for a number of months but nothing has really come through and there is oversupply in the logistics freight market. So we do not see trucks recovering very soon. Uber and Ola will not be so preferred by people because of hygiene reasons; so you could see two wheelers taking off faster.