Sandeep Bhardwaj, CEO of Tower Capital & Securities, in an interview with NDTV Profit’s Namrata Brar and Prashant Nair, speaks about the current market rally.NDTV: Are you perplexed by the liquidity which is driving the markets higher? Earning season was good but the upward movement in markets is just too strong?
Bhardwaj: We are not perplexed as we are positioned on the long side. The reason why I am not perplexed is that we have seen how events unfolded 10 years ago in the Internet bubble and then in the US housing bubble. We are seeing a similar scenario pan out with liquidity being pumped from all directions. For the moment we have asked our clients not to look at fundamentals because there is nothing in the market that you can buy based on the fundamentals. We need to keep fundamentals aside and just play the liquidity game. I think the markets can go a lot higher from here and surprise many with this fast and furious move from here.
NDTV: Sandeep, how higher is the key question?
Bhardwaj: I think the first stop would be around 5,200-5,250 mark and the move up can’t be a straight line up as we may see some very sharp reactions which will lead people to believe that the move is down for good. But we need to keep copper as a lead indicator in mind. It is an indicator for periods like this. With copper being an industrial metal, people tend to believe that if copper prices are going up then everything is well. But we need to look underneath what is going on. Six months ago, Chinese premier expressed great concern about the US dollar and he came up with an idea of alternative currency. China tried to acquire Aussie-Anglo mining giant Rio Tinto and the Australian government blocked the deal. It also tried to acquire an oil company in US company and the US blocked it. However, in the last six months, Chinese consumption of copper has gone up with imports rising by 42 per cent. Whereas the global consumption of copper is down 3.5 per cent. This leads us to believe that China is actually going in for piling physical commodities as it is biggest alternative for dollar, as all these commodities are denominated in dollar. Taking a cue from copper, we have seen oil and aluminum rallying. So, what the market is telling us is that the bad news is good news and not so bad news is very good news.
NDTV: This is manipulation that we are talking about as there were reports that some miners may be buying their own copper to keep its prices at high. In this scenario, isn’t the risk of a complete reversal that you would want to study?
Bhardwaj: That is inevitable! But the question is when that happens. It will not happen sooner because we are in the process one of the biggest bubble formations. The last bubble formation of 2007, which went bust in 2008, was very small compared to present one. Just to give you an idea of the size of current bubble, at the moment we stand at about $5 and 50 cents of debt which creates $1 of US GDP. Thus the bubble formation is immense and it will have disastrous consequences but it is difficult to tell when.
NDTV: What is going to be your strategy in a market rally?
Bhardwaj: What we have seen is that money is chasing everything. So I wouldn’t advise being underweight. I would advise having a balanced portfolio be it defensives and metals. The names which investor is confident of holding should continue to hold that. Top 80-100 names in Indian market compared to liquidity in Indian market is becoming fairly finite. So if you are comfortable holding FMCG portfolio then please do continue holding that because valuations will not make sense anymore for commodities or any defensives.
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