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    Forget doom-sayers, a broad-based equity bull market is playing out globally: Atul Suri

    Atul Suri-Marathon-1200ETMarkets.com

    Story outline

    • A very large, passive ETF, EMs trade going on & India gets its share.
    • Positive govt policies can help India get a bigger share of funds.
    • as a trend investor, my objective is about having portfolios with low draw-downs.
    A very interesting opportunity may be that the whole EM trade will reverse and that can lead to disproportionate flows to India. That is where the benefit lies, says Atul Suri, CEO & CIO, Marathon Trend – PMS. Excerpts from an interview with Nikunj Dalmia of ETNOW.

    Markets have not changed at all, the look is still the same, 15-20 stocks and that is about it.
    No harm, really there is no harm. I know there is a lot of angst that the market is very narrow but let us take a bigger view of the markets. I look at the MSCI All-World index. It is like the mother index of the word. It has 49 countries in it. I know we have a lot of negative news. Whatsapp is full of end of the world scenario, but markets are doing their own thing. They are saying a different story. The MSCI All-World index has broken out into life-time high a few weeks ago! Now you may say that it is a function of the US. So let us go and see the US. It is true that the Dow, S&P, the Dow Transportation has started coming up. Utilities are coming down. So this is inverse. Risk-on trade is on in the US. When I look at the charts and I look at a lot of triggers in the US in the year -- elections, trade wars, corporate earnings and most important bond yields -- I personally see a 20% upside in the US markets from here.

    20% upside in the US market after 11-year bull run in the market that has been called as the longest economic expansion?
    Right.

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    That means Dow could go to 35,000.
    I think so and what I feel is that this is not just going to be the US. Let us go a step further. We looked at the All-World Index, we took out its biggest component Dow, which is 50%.

    All-World Index is what?
    So the All-World Index is a composite index of 49 different markets of the world and out of that, they pick out various components. It is the most broad-based equity index in the world and it is the ETF available. You can actually trade it. If I say, I am bullish on global markets, I can actually buy the world indexes in one ETF. Then I go to the next level. I look at this All-World Index Ex-US. So I take out US. I think that okay US is the only propulsion point, rest is gloom and doom. The other big component is the European markets which have been dead and nobody talks about but even there you will start seeing that the Dax or the CAC of Germany and France, UK market with its own problems, all nudging 52-week highs! Nobody talks about them. They are not headline news.

    Let us go to the next level. Let us look at Japan Nikkei, again a forgotten market. Even that is pushing at 52-week highs. So what you really see is a very broad-based global equity bull market, very contrary to the kind of Whatsapp and tweets that we get.

    Dow has been making a new high for almost three years in a row now. Indian markets also have managed to outperform. At least the Nifty has managed to outperform and it is making a new high on a consistent basis. So what is the new trend Atul Suri is talking about?
    What actually happens is that equity markets have been very good in 2019 but 2018 was a very difficult year. I 2018 December, we were in debt and the biggest trigger for that was US bond yields. Exactly a year ago, if we were sitting here, the talk was that the bond yields which have been declining for 20-30 years has turned and as bond yields go up, money will move away from equity to debt. Just a year later, people are talking of negative interest rates. That shows our ability to predict and the ways and means of markets to surprise us.

    I think the biggest elephant in the room is bond yields. They drive all other asset classes. Last year, we thought a 30-year-old trend had changed and this year we are talking about negative yields!

    We got a headline 10 days ago that there has been a big spike in the US 10 year rate.
    There has been.

    That tells you that the inverted yield curve which took the markets higher is equalising. If your bullishness is based around US 10-year paper, guess that is reversing?
    What will happen is that not just the pop-up is going to reverse. Even if it remains within a range, even two negative inverted yield curves, etc, is not good for the market. But most important thing about currencies and bond yields is their range boundness. The good part is that the collapse has stopped but I feel that we will go into a period of range boundness. This is again coming back to our earlier reading that the big trigger for global markets will be a muted or a range-bound US bond market. If that remains, what will happen is that there is a very big TINA (there is no alternative) factor which is also happening out in India.

    "Going ahead in 2020, we will have a good market thanks to the global bull run in spite of all negative headline news. But for us to turn from good to great is going to be a function of what happens in Indian markets and 2020 is going to be very exciting."

    — Atul Suri



    I feel that money will move to equities and let me take that whole deduction thing ahead. I had mentioned about Japan being another great bull market. The next step I would look at is the EM space and the only place of big concern or underperformance big time is the emerging market index and guess what? We are a subset of it.

    It is also believed and documented that emerging markets will do well when developed markets are not doing that well.
    Right.

    They both are a mirror image of each other. There is an inverse correlation. If one goes down, the other goes higher. What you are saying is forget the blackboard theories. What have worked in the past will not work in the future. We are in a rising tide phenomenon where everything will go up in a synchronised manner. Why is that?
    As I said, the EMs index is not looking that pretty! When you speak to investors, they say that why should we come in? In 2018 the EM index was down 25% and in 2019 when there is a big bull market, at best we have done 10%. We are nowhere near lifetime highs where the EM basket is good. So, the compulsion to be in EMs is not there yet. Yes, the potential is that this trade could reverse and disproportionately benefit India because whatever the FIIs are buying, how come they are buying in tw-three days.

    The direct correlation is that there is a very large passive ETF, EMs trade that goes out and India gets its share of allocation. We tend to over emphasise the local factors but the big EM money that comes is more a function of this trade. Let me shock you with the number. Last year, the total FII negative flows are around Rs 53,000 crore or thereabouts. In 2019, we may sound passive but we are already positive Rs 58,000 crore. The buying this year has been more than the selling last year, though that was headline news. The thing is EMs which fell very sharply in 2018 at 25%, have consolidated in 2019 and are 10% higher. But they are nowhere near what the developed markets are doing.

    For me, a very interesting opportunity may be this whole EM trade reverses and that can lead to disproportionate flows to India. I feel that is where the benefit lies and for India also, you have to accept the headline news is not good.

    It is like a situation where markets will climb the wall of worry. Rakesh Jhunjhunwala says that markets always climb the wall of worry and come down the ray of hope. Right now, there is no hope but there is a wall of worry which markets have managed to climb.
    Right. So, we have a very good global scenario now and we will get our share. We got it last year without doing anything spectacular. In 2019, there has been no great news. In 2020, starting from the budget, can we do something great -- may be divestments, direct taxes or just general economic improvement -- all related to government policies. In case that happens, India can get a bigger share than what is due to it and that for me can be the big space.

    Going ahead in 2020, we will have a good market thanks to the global bull run in spite of all negative headline news. But for us to go out and turn from good to great is going to be a function of what happens in Indian markets and 2020 is going to be very exciting.

    Let’s talk about long-term trends. If markets continue to extend themselves, will the horses also be the same or do you need to jump off the horses?
    Jumping of the horses is intellectually a great concept but I am a trend investor and investing styles are not an intellectual function. It is a function of risk return profile. As a trend investor, I do not believe in being the first to buy a stock or buying a stock at the bottom. I feel that money is made in trends. If a stock goes from 100 to 1000, it is not that I have to buy it at 100. I can buy it at 200 and 300, The more important part is my ability to ride the trend. So yes I know there is this talk that there is a bubble in some space and some spaces are cheap, but the fact is when the market or earnings change, I may be not being buying at the bottom. I may buy it a little late but it is okay because that suits my risk return profile. As an investor you have to allow your thought process to evolve.

    Are you an investor or a trader?
    I am an investor.

    I thought you were a trader.
    What are investors? What are traders? What is midcap, what is largecap, what is quality, what is not quality, these are all related manmade terms. The fact is that ultimately each investor style has to gel with his personality. That makes your style of investing and this has to sync with your investor expectations. That is the crucial part about my evolution as a trend investor.

    Coming to your question, are all these stocks a top made or is it a bubble? I do not think so. Nothing in the market tells me that there is a bubble, Yes the other story can also play out but the fact is that if you let the earnings come and let them play out, we may not buy a 100 to 1000 journey at 100, we may buy it at 200-300, I want to buy it at a point where the risk is low. I am not one of those kinds who will buy a stock at 100 wait for two years and at 50 get disappointed. I would rather buy it at 200 and 300 and see it go to 400-500. That story is panning out in this space. That is where the trends are and being a trend investor I am quite happy to be there.

    If I look at the five or seven-year chart, Eicher has still given a phenomenal return but if I just squeeze in the last two years, Eicher performance has been a nightmare for a trader. It has seen a 40% decline from the top and a 40% recovery from the lows. In the last three years, it is flat. Let us look at three-month or four-month chart for Eicher and it is like one of the scary, volatile charts. How do you deal with this kind of volatility in a zero-debt company, which is also a classic compounder.
    This is the beauty of numbers and statistics based on what view you wantm you can splice data. That is how reports are made. The thing is your projection and all these things are academic discussion. The important part is what is your style and what fits? I really do not need to look at Eicher at three months, one year, two years etc. The important part is, as a trend investor, I am trying to look to invest for three, five years.

    If I am playing that kind of a strategy, then I have to give that stock that kind of leeway. Let us not speak about Eicher specifically. The fact is what data you splice, you can make it a bull and bear case based on data.

    All I am saying is that a classic compounder like Eicher also has given you these nervous moments. It has given these bouts of gut wrenching volatility. An auto company which has no debt in it falling 40% will shake you up. It cannot be compared to a power company or a PSU bank. Yet the stock has fallen?
    The smoothest stock in Indian markets today, and widely owned, is HDFC Bank. This stock also showed 20-30% volatility. A bank that is growing at 20-25% year-on-year with no blemishes, how can the stock fall 20-30%? But in markets, that is the function of multiple variants. As I said, the important thing is as a trend investor, my objective is about having portfolios with low draw-downs. I would like a portfolio that doubles, goes up 100% every year but the fact is if I look for a stock or a portfolio that goes up 100% every year, can I withstand a 50% drawdown because risk and reward go hand in hand? As an investor, it is important for you to be able to define what is your area which fits into your psyche.

    How does stop loss come in now? You said stop loss is sacrosanct?
    Stop loss is sacrosanct because what happens is that when trends change, you will see that same price trend change. I will give you this case of Eicher so it may just be a bit of a story telling; I rode this stock for a long, long phase.

    Not the bike, the stock?
    I do not know how to ride a bike.

    That is a good disclosure.
    It is beautiful. Actually that is where the story goes to. I love the stock and Eicher -- Royal Enfield had opened these stores and there was one that opened in Bandra where I live. I went there and I said this stock has been kind to me, let me go and see what the hell the bike is all about. It is was a very fancy store with leather jackets and things like that. So I went in and I saw some and I said since I cannot buy the bike, maybe I can buy a t-shirt or something. So, I went and saw a keychain and thought I would buy it but I stopped myself. I did not buy the keychain because that is where emotion comes in and I checked myself from making that emotional decision.

    Again, when stocks do well or when trends happen, we fall in love with them. And the exit decision what we spoke about stop losses is not an intellectual decision, it is emotion. Selling is the most difficult thing to do in the market because that is where emotion comes in.

    If you sell in profit, you are definitely in love with the stock because you have made money; selling at loss is where your ego comes in. The decision what to buy or where is the trend is not difficult. Sitting on the trend is more difficult and the most difficult part is exiting the trend. The reason that happens is not because we have failed intellectually, it is an emotional issue.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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