The year 2020, according to us, begins with a note of deep caution and readiness to play downside in most large caps and glamourous valuations. A deep decline during 2020 will form the finale of a three-year sideways correction from where a massive 3-5 year bull run will begin again. Sectors, stocks and size would have re-aligned itself by then.
Below is a summary of our perspectives for the New Year:
Valuation Extrema has met with Trend Extrema: Charts are perched at a point from where we are going to be watching extreme cautiously over the next few days for a big correction to set in.
Private Banks Index set for a 20 percent slide. Slide is the word! The trigger would be a slip below 17,700 on Nifty Private Bank Index. As this trigger comes in place, anticipations and anxiety for a similar move down on Bank Nifty and thus the Nifty too will kick in, technically speaking.
Metals rally is spent, by now.
Autos rally is spent, by now.
IT and pharma are insipid. Size effect visible here. Smaller names beginning uptrends and large caps are readying for a further brisk walk further south.
Infrastructure hasn’t taken off. The charts of these stocks are as boring as any can be. Deeper declines visible.
The only place to hide is “everything Public Sector”. Whether NTPC, PTC, PFC or the PSU Banks or BHEL, that’s where the money is for now.
Value engineering and value unlocking will pay : Whether divestments will drive PSUs or policy initiatives will continue to drive stocks and sectors, the earnings theme has not kicked in yet. Our long bias on PSU banks along with PSU power names and everything else PSU continues to strengthen. May be PSU is the only place to hide for in the first trimester of 2020.
Size won't matter: Size is the proxy for quality in markets. This quality meme is overdone. The Castrol syndrome, wherein Castrol today is trading at the lowest PE ratio ever in the recent history of the stock may happen to a large number of ultra-large cap stocks over the next few years, beginning 2020. That size doesn’t matter will be visible across sectors. For example, if superlative returns appear feasible in Zensar Technology and E-Clerx while we continue to find the TCS, WIpros and Infosys insipid will percolate as an investment meme across sectors. We are noticing early signs of the same, everywhere.
Embrace the unglamorous: Driven by concerted policy action the rally from 10,600 to 12,300 is a flight to safety. Not to miss out on the policy action on one hand and not to get stuck up in low visibility investments the market has been extremely polarised. This polarisation will resolve now.
Consensus is not necessary: Consensus is a sufficient condition for big market reversals, but never a necessary condition. If public participation does not come even when trend extremes are reached, professionals are not required to keep obliging holding up any market. Such markets where everyone who could have bought has bought tops out. Sometimes this topping out process happens with euphoria. That euphoria is not a necessary condition.Sushil Kedia is the founder of Kedianomics.
First Published: Dec 31, 2019 4:22 PM IST
