The equity markets today scaled highs, with the Nifty hitting a record high for the ninth time and the Sensex for the 20th time in 2019. Nifty Bank also scaled a record high of 32,213. The Nifty scaled 12,182, while Sensex hit 41,401 intraday.
Saurabh Mukherjea Founder of Marcellus Investment Managers said, "Given the extent to which the economy is under the pump, the government obviously has made it very clear that they will do whatever reforms they can pull out of their hat to revive the economy and that is what is giving cheer to the bulls."
Talking about the narrow rally, he said, "It is true that in a situation where economic growth is hard to come by, obliviously a small number of companies have been able to produce decent earnings growth and so, the rally is focused around those companies which are able to produce decent earnings growth in what is a weak economy."
According to him, the government's willingness to reform is juicing the market up. Alongside that the inability of most companies to produce earnings is producing a very small set of winners in the stock market, he added.
"I think the market will keep running up on the anticipation of significant reforms in the budget session of parliament," said Mukherjea in an interview with CNBC-TV18.
He further added, "I think this construct where in every sector, one or two companies are taking away 80-85 percent of the profits is likely to sustain for the foreseeable future." The main reason for that being access to funding has become very difficult, whether it is funding for NBFCs, whether it is funding for smaller businesses.
"In a country where access to funding is difficult those few well-capitalised highly cash generative companies will rule to the roost and that is what we are seeing in the market, I don't see that situation changing in the foreseeable future," he further added.
Hope the government delivers on the reform expectations and if they come through, this concentrated rally will continue into the next year, he said.
Sector specific, he said, "When I first discussed the auto sector 3 months ago in October, I was a little more apprehensive whether the recovery will fructify or not, but we are seeing the beginnings of a auto recovery. In some of our clients' portfolios, we have Eicher Motors."
"If we have to choose one sector through which to play a slow burn recovery over the next 1-2 years, I would choose autos because it is a sector where we do find well-run cash generative clean companies with good franchises and valuations too are attractive."
However, he said he was not adventurous enough to go into power, infrastructure, real estate, metals, mining or that sort of thing. "I think auto is a decent sector in which one can find good franchises and play what will be a slow burn recovery," said Mukherjea.
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First Published: IST