This rally is like a relay race, 4 themes to carry the baton through: Atul Suri

The passing of the baton is very important for the broadening of the market and that is visible in the market breadth, says CEO, Marathon Trends.

Look at metals. A stock like JSPL has gone from Rs 60 to Rs 205?
What you are seeing in this pullback rally post March is that there is a very good broadening of the market. So if Reliance dominated one month, IT dominated another month and pharma yet another month. Now it is metals. So, the thing that is happening is that the market is not being just driven by one engine. Yes the perception is that pharma is the one that is leading. For sure, it is still leading but the important part is that when something cools off or something else takes over, it is like a relay race where the baton is being passed and not one runner is running the complete 400 meters because he will tire out.

On the flipside, the burden that we are carrying is the burden of the Bank Nifty because the Bank Nifty is still the largest part of your indices whether it is frontline or midcaps or whatever. A massive underperformance is happening there. So that is being offset. Today maybe it is metals; it was IT a month ago. Sometimes it was Reliance.

The passing of the baton is very important for the broadening of the market and that is visible in the market breadth because what you will notice in this rally is that the market breadth has been awesome. And it is this broadening of the market which ultimately is a very good measure of a market base or a larger bottoming formation which we have had. It is not just a case of a few frontline index stocks or a bottoming of just the index, it is the broadening of the market and that is where the whole metal plays come in.

Again, all the sectors that are doing very well in the last three to four months were under-owned sectors. Even pharma prior to Covid was under-owned. It was a sector that did nothing for five years, and everyone was underweight pharma. In IT, at best, most people were equal to underweight, Reliance, metals it is still even as of right now it is massively under-owned.

What you are having is a very big pullback rally and the broadening is really good for the market. It is heartening for the market because that is where it really puts in a solid base.

Could metals do what pharma has done for us or what IT has done for us? If markets are rotating so much and if all sectors are moving in tandem with each other with the exception of Bank Nifty, does the buck now stop at metals?
Metals are very interesting. If you look at the genesis of the global rally --whether it is equities, commodities etc -- we know that there is a massive liquidity infusion and one of the best measures of seeing how global flows are is the way the dollar is reacting. We have a very sharply weakening dollar and that results in money moving to the risk on trades. Equities is the one and you are having a phenomenal equity bull market that is global in nature.

Irrespective of what the country is doing or not doing in terms of Covid, how well or badly they are controlling it, money is flowing in and everyone is getting a little bit of the hooch. The fact is that this ultimately also moves to metals. We may talk about China demand etc but what you are seeing is a massive flow to risk on trade and that is why you will find what we saw in gold and silver repeating in industrial metals also.

So if you look at the base metal price movements - be it copper, zinc, aluminium -- you will realise that these also have been multi-year underperformers and they are really coming out of it. So, you may have a trade but I would like to use the term trade and not a trend change.

This time, when things are all going up and everyone is enjoying the party, you will have to differentiate between those sectors which are trades and those which are a massive shift that is happening.

So let us look at our earnings; we are in the result season and I think by this week, we will finish. I know it is Covid times, but the number of companies that are still reporting top line and bottom line growth are just a handful. When you start looking at the disbursement of these companies, you realise that they fall into the quadrant. Essentially it is dominated by pharma and it is visible. Second is speciality chemicals which is the longest running bull market we have had in recent times. They really never stopped, they were doing well before Covid and they are doing well post Covid.

The third new theme which is working out is agri. Again, you are seeing very good numbers come out here and the fourth is IT. For me personally as a portfolio manager, yes, there is a momentum but you just cannot chase momentum. If the markets correct which they will, you realise that damages also happen maximum here. So you have to be very fast.

Structurally the fourth theme that I would look to be invested in is pharma. The kind of numbers that are coming out and what is happening is a strategic shift that is happening in this sector. This trend can last the next three to five years.

Speciality chemicals were doing great and they continue to be great. Agri is a new theme. Some of the numbers being posted by some of these companies are fantastic and if this plays out, this can be an under-owned, under-loved sector which can be a longer kind of move and IT.

IT index is at lifetime highs and not only are the few large caps but some of the midcaps are also absolutely on fire. All these four themes are being backed by the numbers. It is not just liquidity and it is not just momentum. I know that a lot of retail is in the market. So I am really addressing that and I have learnt to bifurcate between the trade. Metals can be a very good trade. It could be the trade of the month but you have to look at companies that are delivering numbers in difficult times because ultimately if you are able to perform in these times. What it signifies is that there is a massive tectonic trend happening here and that is where I limit myself to those four themes.