Nimesh reiterates his position that markets are like a coiled spring and now that a new rally has started on the back of the ceasefire news, the probability of the spring uncoiling sharply upwards has increased. This is ideally a time to invest in equity – either lumpsum or STP as per your risk appetite.
However, this rally is happening after a painful couple of years where investors have been nursing losses in their equity portfolios. Here are some behavioural biases he says you should be careful to avoid, if you want to avoid a situation where you land up selling now rather than buying:
- Anchoring bias: If you bought at a price and then saw the fund/stock dip below and stay below for a while, when it rallies back finally to your purchase price, the purchase price becomes your primary anchor and you will likely sell at that price, rather than focusing on whether it makes sense to hold/buy or sell at that price.
- Recency bias: You have seen markets not sustaining any uptrend for last 2 years, so you start believing that this uptrend will also not last and you are more likely to sell on a rise than buy when the rally has just started
- Memory vs experience in decision making: You may have experienced market cycles but if your memory of one cycle is bad, that memory influences your decisions over your experiences.
Nimesh says this is a rally to buy into and not sell out of. Over the last 2 years, while markets have remained range-bound, earnings have grown and valuations have become attractive in many parts of the market.
He estimates Nifty’s fair value at around 27,000. At 24,000, market is below intrinsic value – which is a time to buy rather than sell.
However, businesses are dealing with many event risks –whether it means tariffs or supply shocks or price shocks. One cannot discount this and therefore the sensible way forward is to stagger your increased allocations to equity.
We are in the midst of an upturn in the economy, in the business cycle and in the credit cycle – leading to an uptick in earnings growth projections for FY27 and FY28.
Business volumes data from automobiles, retail grocery stores, jewellery stores, cement, steel and credit growth for banks are all seeing healthy growth trends.
The sentiment cycle has got damaged and may take sometime to recover as the kind of statements being put out by leaders of certain countries amidst the Gulf war are doing nothing to bolster investor confidence.
The coiled spring (market) will uncoil with a fury when sentiment changes – all the rest is already in place.
Nimesh sees a megatrend developing in hard assets –metals, mining, cement. He says the new global megatrend that’s being touted –HALO (hard assets – low obsolescence) has merit and should be considered seriously.
He likes cyclicals now – in particular financials – especially private sector banks, materials (cement and metals) and industrials (power and defense).
Other than cyclicals, he is bullish on healthcare and discretionary consumption while he remains underweight IT services.