A major correction is unlikely and every fall will be bought into: Feroze Azeez
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, Joint CEO,, discusses the market direction in the midst of tariff tantrums, Nifty earnings growth , as well as the domestic institutional investor behaviour. Further, three out of four derivative indicators suggest that no major correction is imminent and every fall will be bought into.If I break the indicators down, Trump is trying to scare the Indian capital market , but is not getting any reaction. His negotiation tactic to crack at least one large economy is not seeming to work because the earnings growth has been 11% for Nifty if you keep constant constituents. There are seven reasons why the market is reacting very differently from the expectation of the news flow.One, Nifty earnings in the last financial year was not 6.5% as reported even on NSE because there were four constituents which changed in NSE over the last one year. The earnings growth of the current constituents of Nifty was 11%, not 6.5% that is point one. Earning has been in double digits. For NSE Smallcap, everybody said the earnings are not good. There were 63 changes in NSE Smallcap 250. If you ignore those changes, the earnings growth was not minus nine, it was plus 18. So, the narrative that the earnings have not been good is incorrect.You have to compare the same stock. You cannot compare Anand Rathi Wealth Limited's earnings of this year with another company which it replaced last year which was a part of the index. So, earnings have been healthy. Domestic institutions are putting in money but I do not think they are putting in so much money. It is still 6.2% of the total household savings.If the car is not starting and you are pushing the car at 5 km per hour, once it starts, will it go at 30-40 km per hour? The answer is yes. But the whole cult of investing at least double digit Indian household savings in equity, we could not do it over the last two, two-and-a-half decades. The Direct Tax Code, the new tax regime has come. People are being given money in their bank accounts and they are deciding on investing in equity. Three out of four derivative indicators tell you that there cannot be a major correction and every fall will be bought into.If you look at each sector and break down flows and ownerships into different buckets, the domestic institutions are betting on banks heavily. Their active weights have gone up on banking. In Nifty, banking has 31% weight and 24% in NSE 500, which is what the domestic mutual funds money track as their tier I benchmark. So, where is the money headed? The domestic money is completely getting skewed to the banking sector.Of course, like you said, there is a hierarchy. That is happening because of foreign institutional investors. If you break it down into three categories and they should mandatorily be broken down into three categories, in spite of them all being called FIIs, they are – index fund investors, active FIIs, and the prop FIIs.Index fund investors have not taken one rupee out in the last four years. They have added money in India. But the discretionary fund managers in the FII or the hedge fund guys have pulled out money and that is why you see a net negative. The prop guys like education institutions are one of the largest investors in Indian midcap and smallcaps. These are the Harvards of the world. Those guys have taken out money because Mr Trump has choked their fundings. So, this is how they are behaving.Coming back, the ownership has changed because weightages have changed in different stocks. If people are not giving impetus or giving emphasis to the weightage change in indices, they will miss out on understanding demand and supply in each sector. Pharma has one of the biggest troubles but it has 4% weight, has a free float of almost about 47% in NSE 500. But that is not moving the needle in terms of earnings because of its lower weight.
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