MUMBAI: Analysing the markets from a perspective of eight-year cycles, in the current eight-year cycle of 2016-24, says Deven Choksey, managing director of KR Choksey Investment Managers, by the first half of calendar year 2018, markets peaked and later experienced a sharp fall as sell off in equities were resorted to pay for losses incurred by traders in crude, commodity, bonds and currency. We spoke to him about what is in store for 2019, as the cycle is at a terminal point moving towards 2020.
What is the eight-year cycle you observe and where are we right now in terms of it?
As we have seen in the past, in the eight-year cycle, we see the market bottoming out every fourth year and then rallying thereafter in the balance four years. In the 2016-24 cycle, if I assume that 2016-20 is the period in which the market is expected to bottom out, it will bottom out somewhere in 2019-20. The market has made an intermediate peak, I think invariably in the first two years of this cycle. In the first two years, market makes an intermediate peak, then goes down, makes a bottom in the middle part and then probably rises. This is the typical cyclical behaviour.
What then is in store for 2019?
The analysis says that 2019-20 is a period in which the market will give a fair chance for someone to buy into at a lower level. It is not necessary that every time it has to crash to give an opportunity. Quite possibly in 2019-20, it may just drag and give a chance because other fundamentals are remaining extremely strong for India. 2016-24 is among the best of the last four cycles for the country.
Divergence in FII and DII behaviour in 2018?
If you look at the foreign money, it is the portfolio money as FII money and FDI money, which is coming for infrastructure. If you look at the FDI money, we have surpassed China this year, attracted about $32 billion. This is what is important, even if portfolio is not coming, the money that is coming in for infrastructure is more important, then I won’t consider the FII outflow as negative outflow per se. Portfolio money comes in and goes out, because largely it is trading money. As far as DII is concerned, the domestic savings flow is largely getting in in the area of mutual fund. We are getting $1 billion from SIP alone. We have reached the stage where $10-12 billion a year from mutual funds alone. On top of it, insurance is growing at 10-15 per cent. We also have an important change driver in pensions that is bringing 15 per cent of its funds into equity markets. Domestic money flow is likely to remain certain. If GDP and income grows we would be safe in terms of domestic flows in the market is concerned.
Industry segments and the companies to look at?
Time has to come for to look at for new generation of companies where the relative amount of growth is very high. Technology led manufacturing, they should be the ones we should be looking at favourably, be it in auto, auto ancillary, capital goods, personal consumption areas like insurance, non-banking financial companies leading to consumption led growth, e-commerce companies, IT platform providers. The core in business portfolio like what we see in America will probably work, but may not be main contributors to growth in investors’ portfolio, it would be driven by new generation of companies.