Wait for dips to get into IT, pharma & chemicals

For the market, the US election won’t matter much. More important will be the clue on the vaccine front and then on the stimulus side, says Daljeet Singh Kohli, CIO,

What are you making of the market temperament?
We are going into the earning season with a lot of positivity and stock prices have already moved so much that despite very good performance by most of the companies, the reaction has been actually on the negative side. It is purely because of market positioning before the event. At 12,000, there is a bit of consciousness about whether we are moving far ahead of fundamentals and how much scope is there to go up from here.

Then there are events like the US presidential election, the fear of the second Covid wave and all that. This is giving a mixed feeling and not allowing it to go to either side. In our October note, we have also mentioned that in the initial part of the month we expect volatility to increase and this indecisiveness probably will continue for some time. That is mainly because on one hand, we have good numbers but on the other hand, we have events and we are already positioned very high. The margin of error is very low for all these companies.

What will take it out of this range is if we have some decisive action on the corona side meaning some vaccine comes in. I do not give too much importance to the US election because every election, like anywhere in the world has a very short term life. It will probably be a one or two days affair after that we will forget about it. We will come back to fundamentals and all that.

More important will be the clue on the vaccine front and then on the stimulus side which we are talking both at the US level as well as our country domestic level. The government has been giving those hints and many times they have spoken about that. Unfortunately, the last two stimuli have not been up to market expectations. This time we don’t know what they will do.

The indecisiveness will continue in November. People will remain optimistic but on some negative news, there will be a cut and suddenly the volatility will increase. As a trader, it may work but for investors, it is better to wait for dips. So we look for opportunities in IT, pharma, chemicals sectors.

Would you look at some of those names as well on the utility space?
We follow a strategy where we want to be with the leaders of the market. We do not want to stay with or look for opportunities where we might have to stay for a very long period. There may be value there but we have to wait for that value to play out because that needs a lot of patience and a lot of waiting time. But between there are many things which may happen. Normally, we tend to be with those sectors or stocks which are on the upward trending side. Unfortunately these power stocks are not coming anywhere in that list mainly because they are very slow performers, there is a lot of interference on the policy side.

Although you can argue that they are very good value buys, somehow they have not played out well and have not given good returns in the past. We would like to stay away from these.

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