Be careful of the rally in laggard stocks

It is not just this March, even last March the Nifty was at 12,000. Even two years back, Nifty was at 12,000, says Shankar Sharma, Vice Chairman & Joint Managing Director, First Global.

When the world discovered a problem called Covid, Nifty was at 12,000 and now that the world has discovered a vaccine hopefully, Nifty is still at 12,000. Markets have taken a complete turn and benchmark indices are where they were in March. Your take?
It is not just this March, even last March the Nifty was at 12,000. Even two years back, Nifty was also at 12,000. The beauty of our market is it always keeps us in a state of excitement. But woh ek gadi hai (it is a car). You are sitting in that car and you are pressing the accelerator full steam. Usmein kale sheeshe chade hua hai, ab sheesha neeche karoge toh aap waha se hil hi nahi, aap wahi ke wahi ho. (The car’s windows are dark glasses. Unless you lower them, you will not realise that you have not moved. You are sitting in the same place). The sound, the fury of the engine is massive. The passenger feels he is out on an adventure, but he has not really stirred from where he started. To the best of my knowledge, that has been the case for the last two, two-and-a-half years. That said, within that, many stocks have made huge money. So the Nifty may or may not be the right benchmark to use.

This year itself I was looking at a list of the best performing stocks in the world and I found that a company called Aarti Drugs is in it, which we happened to own in our funds. With nothing really going for it, it is up 15 times from March or April. The stock has been flat for the last 10 years but its m-cap has gone up to Rs 8,000 crore.

We have had huge winners this year even though point to point, Nifty is more or less flat for the year. That is the incremental story for India. It has always been a great bottom-up market and if worked hard and had a bit of luck, you will find 10-20 stocks to fill a decent portfolio. That said, I must add one very important thing. I am not a believer, I will always ask questions. I ask this question that if everything is so good, then why is it that in the last six weeks, Nifty has been driven singly by banks and everything else has been a negative contributor including today?

A 4% move in the Bank Nifty has led to a 1.5% move in the Nifty but that is roughly 40%. So there is something which is happening under the surface that we need to be mindful of. There are enough stocks and we are spoiled for choice but on the broad headline indices, there is a degree of narrowness in the bull market that we saw starting from 1st of April. It was a beautiful bull market and we played it. Luckily, we avoided the March fall.

In hindsight, the easiest part of this rally was up until the end of August or even from the end of September. From October till today, there has been a little bit of wobbliness in this market where a narrow group of stocks is going up which have lagged so far. Banks have lagged the rally. They are 13-14% away from their highs.The laggards’ rally is something which we need to be careful about. Just like in life, you need to be careful if you are going out today. It is not that you will catch Covid. But just be careful, just be mindful.