stock market strategy: Market will fall dramatically when economic growth disappoints in a big way: Vikash Kumar Jain

There is one theory which says that when the adjustment in the world starts, it will start first with the money market then it will come to the currency market and then it will come to the equity market. The money market adjustment is over, currency has already started moving and now equity markets are to get sharpish adjustment. Do you think history will repeat itself and the casualty now could be equities in the second half?
When we say equities, it is really which benchmark we are looking at. If we look at the kind of correction that expensive growth stocks have seen, that is Nasdaq from the highs in December, January, that is quite serious. If we look at the kind of correction that China and some other markets have seen, that is pretty serious. If one looks at the last quarter and what all the market has absorbed, a massive crash in Nasdaq is how we started January then we got into a war, last quarter saw record FII selling.

In fact, at the end of March, if you can pick and choose your time horizon, three months, six months, nine months, 12 months any rolling three months, six months, nine months, 12 months period, in known history, FIIs had not sold more than what they had sold at the end of March. From that perspective, the market ended a little up – 1% higher. So, it has absorbed a lot. Basically sector rotation is the way it has played out.

Perhaps, that is something that we should take into consideration saying why do we say that equities have not been reacting? If you look at some of the more expensive growth sides of the market, they have reacted pretty violently.

Look at Nasdaq and you can see where some of that reaction has happened. It is just that the sector rotation has masked it on more generic indices – whether it is the S&P or Nifty.

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How much of the rerating do you think is still left in the so-called value space? What used to be the ugly duckling, has now become a craze?
I think that has been the theme of this market post Covid. A large part of the recovery that happened after Covid hit us was that many central banks and governments were taking action which was kind of percolating down in the belief that this will lead to genuine economic growth coming back. That kind of confidence has been lagging for a large part of the last decade.

This year we are going to end with a Nifty EPS growth of almost about 40%. By the time FY22 ended, we were getting high teen or very high EPS growth for Nifty. Many of these stocks which have become expensive at a time when economic growth or general growth was not there, now started taking a back seat. So what market participants have been trying to play is leverage to genuine economic growth coming back.

So yes, the Fed is taking action but that is because of the kind of economic growth that we have seen last year and that has led to inflation. This market will start falling more dramatically when the worry on economic growth becomes much bigger and starts disappointing in a big way. That has not happened yet. Only when that starts happening, will we have the next level of rotation.

When economic growth is picking up, when people are talking of infrastructure spending, then it is really the old economy which comes back and which after years of underperformance had become value. That kind of sector rotation has been playing out. I believe that that is not something which is over.