Don’t blame SVB or Adani for dull market; broad bull market unlikely in India anytime soon: Shankar Sharma
The Adani Group or SVB was not the reason why the Indian markets have been somnolent in the last two or three months.. The reasons are more internal.
The reasons are that there is a slowdown in the economy based on the GDP numbers that we have seen,” says market veteran Shankar Sharma.
What kind of a market are we in – not here, not there?
Yes, you can call it the midpoint. It is a very boring sideways market.
It might look exciting because it has been down from the peaks a bit, but it has been a very slow grinding fall most of the time. So yes, it has been quiet. And quiet is good.
There is no reason to come to the market for excitement.
2008 was the first time we saw a banking crisis of that order in living memory.
There can be routine failures; in India too, in 2000 Global Trust Bank failed. In ‘90s also, a couple of banks failed. Those are individual events.
In the US, there have been a lot of bank failures. There are community banks.
The US is a huge country like India and there are small banks serving the local community.
They keep going burst if you look at the data.
But 2008 was a completely different animal in which there was a large-scale collapse of the financial system itself, not just lending banks but investment banks and brokers and everything.
Everything from Merrill Lynch to Lehman to Washington Mutual to AIG, which is an insurance company.
It was a completely different order of magnitude.
Compared to that, we would take SVB or the Signature Bank collapse any day.
The other thing is regulators learn to act very quickly.
There is always learning with a new event. So, 2008 will not get repeated by any stretch.
I mean, let us not even start thinking like that.
I completely agree with that. I do not think SVB is the problem.
If indeed you want to look for problems, the problems may well be more internal to India than an external shock like a large-scale banking contagion in the US.
That will have its occasional day in the sun, but that is not the reason why India has underperformed this year. It is a completely different set of reasons altogether.
The bigger problem for Indian markets in a sense this year has been what has happened to the Adani Group of stocks.
Now that deleveraging has started, the promoter has released their own pledges.
There is a big white knight who has come and invested $2 billion in Adani Group of stocks. Do you think from a market standpoint also, it is time to move on?
I think Adani was a non-issue for any serious investor in the stock markets.
We made it an issue beyond what it deserved to be. It is a large group, but still one group and one group cannot be said to be representative of the entire market, no matter which group that is.
We have had governance problems with Infosys.
We have had governance problems with Reliance, not one, but maybe a dozen of them.
Sebi has passed orders against Reliance promoters, against Mukesh Ambani or against Reliance company or group companies
Sun Pharma, a marquee company, has had a series of problems in the last three-four years’ time. None of that has been represented in the public eye as if that is going to dent the image of India or is an attack on India.
It is all complete and total nonsense. This is a group problem. The group is dealing with it and more power to them.
They are important for the growth of certain parts of India, which is the infrastructure part and I hope and I pray that they come out of it. But to extend that to say the market is going to suffer because of that is a complete non sequitur in my view.
We draw false positives and false correlations and causalities.
The Adani Group or SVB was not the reason why the Indian markets have been somnolent in the last two or three months’ time. The reasons are more internal.
The reasons are that there is a slowdown in the economy based on the GDP numbers that we have seen.
The markets have been sensing that and I speak to companies all the time and right after Diwali, from Diwali onward last year, I started to get a sense that there was a slowdown in spending.
Rural economy has been hurting in any case. It was urban spending which was propping it up and that has also started to slow down.
That is where the market started to get a bit jittery. It is not Adani, it is not a foreign bank contagion.
In some of your latest tweet, you have been saying that some of the yields available in fixed income and financials in the US are looking simply mouth-watering.
Is the fact that fixed income is giving better or more assured returns than equities going to make the attractiveness of equities as an asset class shrink in the near term?
You are absolutely spot on. The competition for the market is the fixed income part, it is a much detested cousin because all of us are equity guys. We do not like fixed income in most part, but it is providing in India and globally some amazing returns.
In the US, like I tweeted, you can buy good quality bond ETFs for now for about 5%, 5.5%, 6% yields, even 7% yields. Real estate investment interests are like 9%, 10%, 11%, 12% yields.
In Singapore also, you can get fairly decent yields. In India, the yields are really mouth-watering to say the least which provide you low volatility returns for an average investor.
Again, that is a good reason to attribute the equity markets’ underperformance in India. Adani or the foreign bank thing are very temporary phenomena, it is more fundamental and which is that rates are very attractive and people are at this point choosing fixed income over equities.
Again, I go back to my point that the economy being what it is, my belief is you are not going to get a broad bull market.
I do not think any of us should hold out hope that we are going to see a broad bull market in India anytime soon.
We are going to see very patchy markets in which a reasonable part of the markets will be flat or even down, while small pockets of stocks whether in the Nifty or below the Nifty will be doing well and that is really.
By:ET
