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What's causing the market crash: Nischal Maheshwari

Nischal Maheshwari, CEO Institutional Equities, Centrum Broking

Synopsis

“Besides the international worries, there has been rumours about possible LTCG hike in the coming Budget and that is what has worried the market more and thrown the cat among the pigeons, leading to everybody hitting the door at the same time.”

IT midcaps in India are now quoting at 40 and 50 times. It means some amount of correction is healthy in the market but we have to keep it in mind. Basically, after a long period of time, we are seeing 25% growth in IT among a lot of stocks. At least for the next couple of years, we might see that kind of number. One may not see much fall in these stocks but healthy correction is good and that is what is happening in the market, says Nischal Maheshwari, CEO- Institutional Equities, Centrum Broking.


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Are global markets and asset classes in risk off mode? Across asset classes, Bitcoin, of course, is in a different orbit altogether; it has fallen 25% already year to date, crude is up 14%, Nifty is down half a percent year to date and the Nasdaq has fallen nearly 12%.
The whole world is basically worried about inflation and this time it seems to be much more stickier than what we would have otherwise looked at. This is a supply side issue. Given the issues around Covid, we do not see a quick solution to the inflation side.

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If one looks at it, basically the Fed is far behind the curve. The market is really worried about saying that though they have guided for three raises this year, it might be four and it will be in quick succession. On top of it, liquidity is being withdrawn across the world. These two events which were expected and should have happened at least six months back, are now coming to culmination and we are seeing the impact of that. Today, besides the international worries, there has been rumours about possible LTCG hike in the coming Budget and that is what has worried the market more and thrown the cat among the pigeons, leading to everybody hitting the door at the same time.

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What is playing out with the markets right now? What is your sense on what is happening with the technology names at a global level? Nasdaq has already given up about 12 odd percent on year to date basis. This is rubbing off on the Indian IT names as well. Do you sense the high PE names are bound to fall under their own weight as is the case with IT globally?
The Nasdaq fall was triggered by the Netflix results where the outlook as well as the margins have compression on both the sides. That triggered off basically seeing that possibly the Covid impact is now weaning off, people are heading back to offices and leading a more normal life. That’s why they are seeing a lesser number of subscriptions, lesser hours of usage and that is why leading to margin compression.

That is where the Covid trade is now weaning off. Across the world, we have seen selloffs in IT. Having said that, the outlook on IT still continues to remain very robust. Yes there is valuation problems out there. The midcap IT stocks in India are now quoting at 40 and 50 times. It means some amount of correction is healthy in the market but we have to keep it in mind. Basically, after a long period of time, we are seeing 25% growth in IT among a lot of stocks. At least for the next couple of years, we might see that kind of number. One may not see much fall in these stocks but healthy correction is good and that is what is happening in the market.

While you described the correction in the market in general as fairly healthy, what are you advising when it comes to some of the recent listings as well as some of the other IPOs that are lined up because it is going to be fairly hectic for this year ahead?
On the tech side, I continue to believe that the e-commerce companies are the future winners and there would be a lot of interest in them because they have been able to create newer services and have been able to disrupt businesses. They are the future now. Obviously one has to look at the valuation side but with this kind of correction, Zomato definitely seems to be in a good position to be acquired.

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There are other stocks like Nykaa and basically on correction, one should definitely look at them. I think there will be a lot of good IPOs but because of the way the market valuation was, in this correction, one needs to identify a lot of good IPOs which have happened in the last one year.

So one should go out and start looking basically, keep it on the radar and wait for the right price to come in.
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