Market shows signs of stability despite uneasiness: Hemang Jani

"The levels wise we are surely getting better. Maybe a little bit of more grind or consolidation, but things should do better from here on," says Hemang Jani, Independent Market Expert.

How are markets looking?
Hemang Jani: That is right. The question is short but nobody seems to have a proper answer at this point. So, we are in a phase of the market where there is a bit of uneasiness despite the fact that we have already fallen quite a lot, you look at index, you look at stocks so on and so forth. The incremental data points are turning positive be it the regulatory support, be it crude price. Even the flows into emerging markets which has been the biggest worrying factor for a while is getting better. But the only thing is that India is yet to really see that inflow come through. So, maybe we will have to see through this phase. The levels wise we are surely getting better. Maybe a little bit of more grind or consolidation, but things should do better from here on.

The Street still seems pretty divided and it is almost a bull and a bear kind of tug of war when it comes to IT. Having said that, the stock prices are telling you a completely different story, indicating the market has completely tilted towards the bear side when it comes to Nifty IT. How would you approach the sector right now?
Hemang Jani: What is happening is that there was a bit of a positive view on IT and mostly consensus positive view saying that incremental deal flow has been good, IT firms are hiring, and as you see a bit of a strength come through in US economy this discretionary spending will get better.

But the recent interactions with the managements of companies is indicating that while things were better, but it is not showing any meaningful progress from the point we were at probably a couple of months back. So, there is a sense that you might see a bit of a lull before you see more clarity. And I do think that as a space one should not commit overweight position at this point of time, but some of the stocks which have corrected where the growth visibility is good, maybe Coforge, Persistent these are the names that one can really go with at this point of time.

How come nobody is talking about this selling in IT? We are talking about selling in defence. We are talking about selling in construction, but LTIMindtree down 33%, Mphasis down 30%. Even TCS is down 23%.
Hemang Jani: So, relatively just now this selloff in IT has started and earlier we had a little bit of stability come through in the IT when this whole fall started somewhere, let us say in October, November, IT was relatively holding out. But now, the sense which is coming in is that you are seeing a bit of a slowdown in discretionary spend.

The US where there was a consensus view that you will have a much better data points, tax cuts, and increase in the discretionary spending is not playing out that well. So, versus the consensus expectations that the market was working with in terms of the IT spend, etc, there is a sense that you might see a bit of a disappointment and which is why we are seeing this selloff and if US remains a bit of in a weak spot for some more time, you will see some more weakness come through in some of these IT names.

What would you have to say about IndusInd Bank? Does it seem like day before selloff was unwarranted and would you read at all into that 4% bounce yesterday?
Hemang Jani: It is a larger issue of the corporate governance and credibility more than the numbers or the valuations because at regular intervals, we have seen that some or the other surprises comes our way and that would not give comfort, particularly in case of banks and financial services the comfort or the credibility is far more critical.

So, at least for now, the market would kind of try to avoid that wherever people are holding maybe they are trying to kind of clean it out. The only thing is the stock has corrected so much. Even previous quarter, when this microfinance related negative surprise came through, the stock lost about 20-25%.

Now just within a short span of maybe one or two days, it is down 25%. So, it might kind of try to stabilise depending upon the short position or technical factors. But purely from a fundamental perspective, people would want to avoid IndusInd at this point.

A few good things about Indian retail investors, please say.
Hemang Jani: Absolutely, what is very important is that what we had seen in earlier periods is that when you have such a big sell-off, there used to be a lot of lumpiness in the flows and the mindset change has happened big time, both in terms of their investment into equities through SIP, through opening Demat accounts, etc, etc.

So, I do think that this is a very good sign and it brings an element of stability to the domestic mutual fund industry which has been supporting the market for an extended period of time.

For a large number of years, we have not seen the kind of selloff that we have seen in the market, almost about $30-35 billion in a short span of about four to five months.

So, to withstand that kind of an onslaught and at an index level, we are just down about 12-13%, so that definitely says that the depth of the market is much better now. There is a much larger participation and I do think that that brings a lot of comfort for a lot of investors.