We are at the first stage of a bull market, says Atul Suri

After the first stage is scepticism, there is the second stage of acceptance and then there is the third stage of euphoria, says Atul Suri, CEO, Marathon Trends – PMS.

Are we in for a good Christmas this time?
One does not know about dates like Christmas and Diwali but I do feel that we are part of a larger bull market. People I speak to say now that the markets have run up too much, it is unjustified and it is going to correct. But I think we are probably in the first stage of a bull market and that typically is the stage of scepticism. There is such immense scepticism among domestic participants that it is unbelievable. Just look at the DII numbers and you will see that.

In a market that has gone up 12-13% this month, we saw record domestic selling. Obviously the domestic investors have seen the well in the Covid when the fall happened. As the market has recovered, they are now scared of another crash coming and in this stage. In the first stage of scepticism you typically see such activities. You also see that the flows that are coming are not just from India, it is global. There is a tectonic shift happening in equities globally. Unfortunately on the domestic side, investors are very sceptical.

After the first stage of scepticism, there is the second stage of acceptance and then there is the third stage of euphoria. There is hardly any euphoria in terms of leverage and in terms of people piling on on top of each other, standing in queues with application forms to put money. In fact, it is the other way around. There are net redemptions from domestic mutual funds. I personally think we have a long way to go. Until there is euphoria, you cannot have the top of a bull market.


Why do you say there is scepticism? FIIs are excited about investing and there is no scepticism from our good old foreign investors.
Exactly. As I said, domestically there is scepticism and globally money is coming in but not because India is doing anything special. It is part of a global move towards emerging markets. The emerging markets have underperformed the developed markets for almost a decade and the easy liquidity is now flowing there. A small part of that coming to India and that is really what is reflected in the FII flows.

FIIs have not suddenly started falling in love with India. It is a thematic trade and the theme is allocations to EMs and that is why we are seeing these kinds of consistent flows.

In post Covid world, things are not great but still people are getting euphoric about markets. A lot of businesses have not started, lots of shops are empty. But markets are forward looking and as liquidity is the main driver, there is a mismatch. A lot of domestic investors are going out and the domestic redemption numbers show that. India is part of a very large systematic move where the currency depreciates and risk-on trade happens. The movement that is happening in commodities, metals and even EMs tend to be a part of that risk-on trade.


The leaders of the bull market which started in April or May are IT, pharma, Reliance. In the month of November, it is banks and autos, the other end of the market. Is that good news or bad news?
It is absolutely good news. In fact, in a bull market, if only a few sectors or stocks drive the market, it very often ends badly. To have a sustainable long-term bull market, there must be sectoral breadth and that is what it is doing. Like you mentioned, IT, pharma, consumption related stocks are resting this month and that is okay because you cannot have just one, two, three sectors driving the market. The rest of the market has to catch up. This circular rotation between sectors month to month or quarter to quarter whatever period you have is very important because market breadth is a very good indicator of the solidity and strength.

When there is market breadth, there will be participants at various places in the market who are enjoying the benefits. We had a very good small and midcap rally two months ago and a lot of retail investors were stuck in that. Suddenly, they have all very good returns and that creates confidence and that in fact builds a bull market. So market breadth, sectoral rotation is fantastic.

In the last five-six-seven years, real estate has been one of the most underperforming sectors apart from PSU banks. But now we are seeing good moves in real estate and some of the PSU stocks. Metals, commodities are also performing. The breadth of the market is a very big positive and that is what makes me even more optimistic of the market.

What do you feel is going to change that last bit of scepticism that remains among domestic investors?
The GDP growth numbers etc do not bring in investors. What brings in investors is the left out feeling because investing is more about emotion than just statistical numbers. As the market goes higher, retail investors will start getting that left-out feeling and that is when you will find that all that money that is parked on the sidelines, will stat coming into equity markets. What is the alternative? Is it fixed deposits, real estate? The stocks are going up but underlying themes have not changed. So, the alternatives for investors are very limited and at some point in time, there will be this left-out feeling and that will bring money to the markets. I don’t know when that tipping point will come but we it will definitely come.

What is the outlook on the commodities pack?
It is phenomenal and has been a very good play for a lot of people and the interesting part is the smoothness and speed of the rally. Commodities is something which many people have ignored for years and there have been longer term downtrends and now there is a very sharp up move. We have a handful of commodity stocks in India which are of some pedigree and quality and they have done very well. What drives them is global commodity prices.

One very sensible way of playing commodity pack is to keep an eye on how the global commodity prices are moving and that again is showing a very good uptrend. We are seeing a very big risk-on trade and lots of flows towards commodities in emerging markets. On the contrarian side, you will find that gold which was the safe haven trade has actually corrected and that really gives you an understanding of what is happening. Nobody is talking about crude and it does affect India because of the general euphoria but crude has also rallied a lot and so Brent also has done well.

This is a complete risk on trade, the money is moving to commodities. It is going to help crude, it is going to help metals, it is going to help agri etc. It is going to move the emerging markets which it already has and India is getting its share. This is really a part of a global jigsaw puzzle.