I expect to see recession in US in the last quarter of this year: Nischal Maheshwari

“I continue to keep the faith. I have been an investor, I hardly do any day trading or month trading also. Basically over years I have seen that wealth creation always happens when you keep the faith during down times. You do not need to rush away from this because in the down time you are selling away out of fear and over a period of time, we have been able to guide ourselves to be neutral during these times. It is best to not see the markets on a daily basis,” says Nischal Maheshwari, CEO, Centrum Broking.

I guess the message is straight, do not try and catch a falling knife, stay away, let the poison get out of the system first.
There is no hurry in this market. I think wait and watch but I would say we are not far away from the bottom, because there is one silver lining to all this that India is importing most of its inflation and is a imported commodity dependent market. If the prices are falling, this is good for the country.

If oil is falling, I think it is very good. If every other metal has started to ease off, that is where we get benefit out of it. As an economy, we should be doing alright as we go ahead. Inflation should come off domestically as well as internationally because commodities are fuelling inflation across the world.

One should not be in a hurry to buy but for those who do not have cash or who have already seen their portfolio go down by 25% to 30%, what should they do?
There is nothing much to do. If he does not have cash, he cannot average it out now. So, if he has been an investor, he must just hold out because volatility is the nature of this market.

If he does not want to be a part of this volatility, then he should just do SIPs in a mutual fund and get out of this market. But if he is an investor, he needs to just hold out. If he does not have cash, he anyway cannot do any averaging.

What do you think about the commodity and the metal space? Do you think the best is over and perhaps now is the time to exit out of that trade if you have not already done that?
Yes, definitely, for the last four or five months, although my analysts have been bullish. But it was very clear from the argument that inflation was running away in the US and sooner or later Fed had to come and do something about it and it would have led to this kind of aggressive rate hikes. Historically, seven out of ten times, whenever this kind of aggressive rate hike has happened in the US economy, it has led to recession. I do not think it is going to be any different this time. I think in the last quarter of this year in the US, we will see recession and if that is the situation, I do not see commodity prices being where they were.

Aluminium price was 3,500 pounds a ton and on Monday it has fallen to 2,500 pounds a ton on LME. The question is whether the demand is sustainable or not. Even if I look at steel prices, they are still 50% higher on a year-on-year basis. How do you say that the demand is not going to go away from here?

On a year-on-year basis, steel prices are up 50%, it must be corrected. This is not a sustainable level for all metals, they all must go back to their long-term averages and long-term average of aluminium is $1,700-1,800 and that is where the markets are going to bottom out. When they reach there and when you have had excesses at one side, it will show excesses on the other too. These are people who are hopeful that metals will come back and I think even those guys are throwing in the towel now.

Does today’s price action smack off compulsion and more so on the midcap and smallcap side?
FIIs do not own any of them. They do not touch anything below Rs 5,000 crore and so they are out of smallcaps. Midcaps are partially owned and this kind of selling in this market can only come from the domestic retail investors because even the mutual funds do not have a compulsion to sell so aggressively.

Most of the mutual funds in the last few months have been sitting on cash as there was no compulsion for them to come and dump these stocks. This is largely the retail which is selling. The HNIs have a compulsion to sell.

FMCG stocks have fallen a fair bit from the 52-week high. Emami is down 35.5% and there’s a 34% slash in Godrej Consumer; Dabur is down 24.5%, Unilever has lost 23%, Marico, Tata Consumer the entire pack has been shaken off. Do you think FMCG has fallen enough and are fundamentals changing for it so that it can be bought as we have been promised a good monsoon?
Besides monsoon, the bigger thing that we are seeing is the fall in commodity prices. As yet, I have not seen wheat and sugar going down but I am definitely seeing palm oil going down and in the last two days, oil is down almost 15%. That is positive for all the FMCG companies.

On top of it, we have a good monsoon forecast and besides that, they are the defensives in the country. People want to hide in good quality defensive stocks. We have been buyers, recommending them to be bought for the last quarter at least.

How much longer will FII selling continue?
I am also amazed at the kind of selling they have done in the last six, seven, nine months. I think this compulsion is because they have lost so much money everywhere else and India has been the country where they have been able to sell without much loss. The markets are down here also but they were able to get out a lot of money. Once the oil falls below $100, we will start seeing FIIs easing off selling in the country.

What are you doing with your own money for instance right now, is it going towards hard assets like real estate or gold or are you reposing faith in equity markets and if yes, then which are those pockets?
I do not have more money to invest. I have been in this market for the last 30 years and I am fully invested and obviously everybody’s portfolio is down 30-40% and so is mine.

I continue to keep the faith. I have been an investor, I hardly do any day trading or month trading also. Basically over years I have seen that wealth creation always happens when you keep the faith during down times. You do not need to rush away from this because in the down time you are selling away out of fear and over a period of time, we have been able to guide ourselves to be neutral during these times. It is best to not see the markets on a daily basis.