Sudden 5-7% downward movement of market cannot be ruled out: Piyush Garg, ICICI Securities

In a chat with ET Now, Piyush Garg, EVP & CIO, ICICI Securities, says whatever you do, you should hedge 3-4% on either side

ET Now: This is the thick of the earning season and markets are rewarding good numbers from the midcap space. Just take a look at how Eicher Motors has done, Whirlpool is up a whopping 7 per cent. How has the season panned out so far?

Piyush Garg: Numbers have been mixed and cannot indicate anything in terms of direction of the market. The stock specific movements are going to continue and as you have put, the numbers which are good are being rewarded, possibly more than they deserve. Also, there is lack of confidence in the market which makes this movement slightly bigger.

ET Now: After the recent low of 7250 on the Nifty, do you think the downward movement is here to stay because on Wednesday we went dangerously close to that?

Piyush Garg: You can flick a coin and decide. It is no different from the probability. One bad day in the global market got the Nifty down 200-300 points. This is what we saw. If you see Tuesday late afternoon market, Nifty started falling from 7550 odd levels and by 9:20 am next day morning, it was trading at 7350. So the overnight risk in the market has significantly increased. Day risk can still be managed to some extent but overnight risk is high and it is totally in sync with what is happening across the globe. If markets lose steam or the negativity continues, we will break 7250.

ET Now: What should be the positioning – bearish, bullish, staying out?

Piyush Garg: Over the next six-eight months, if the negative momentum gathers steam, then it will look like a reality to me.



ET Now: Stay out if you are planning to buy and if you plan to go short. Is this the time to go short still?

Piyush Garg: No it is not easy. You can take a call. It is very difficult if the market moves because after a 20 per cent fall in indices, it actually does not make much sense to short the market. So from a shorter term perspective, the chances of bounce back is high but the medium-term risks are still there in the market. Some of those risks have to be seen over a six-month or a eight-month period to see how they pan out. It is a very difficult call. Whatever you do, you should hedge a bit on the other side and then possibly trade it out. So if you are going short, you could possibly buy some call spreads or maybe some structure so that you are protected if the market moves about or beyond 3-4 per cent. Similarly, if you are going long, you need to protect 3-4 per cent on the downside as well.

ET Now: If you look at the numbers that have been put out by companies with exposure to the infrastructure side especially from the capital good space, the picture is not pretty. Whether you look at a biggie like Larsen & Toubro or at a smaller name like Cummins or Crompton Greaves, the picture is the same. Do you think that we would probably see even tougher times and tougher quarters ahead for some of these companies like in case of Crompton Greaves, the stock that has been wiped out almost?



Piyush Garg: I cannot go into stock specifics, obviously some other stocks are also falling because of some corporate governance issues. But largely, it is very clear. Industry is operating at closer to 70 per cent capacity utilisation. There is no private capex happening that is almost engraved in stone now. Whatever capital expenditure is happening is possibly flowing from the government. The debate is shifting now to terms of what fiscal deficit targets the government needs to follow next year. From capital front, things look pretty dismal on the domestic side. On the global side, lot of these companies in infrastructure have huge exposure in whatever capex building has taken place over the last decade or is happening currently. With oil at 30, there is definitely a massive balance-sheet constraint that is developing in many of these oil exporting countries. So that can definitely harm many of these stocks and it is getting factored into the market. If the collapse happens in West Asia where they are running currencies pegged to oil, it becomes far more problematic for them to manage their macros. So it is a tough call and I would say it is better to be on the sidelines in these stocks rather than get into them.

ET Now: So what is the good news? In markets, there are always good news and bad news and so far we have heard only the bad news.

Piyush Garg: We have discussed reality. Now if you take it as good or bad is a different thing. The only good thing I can see is that Nifty has corrected 20 per cent approximately from the top. Typically if you see a 10-15 year market structure, (except for 2008 which was obviously a year of global crisis and the market corrected 50-60 per cent) typically between 20-25 per cent is considered a good correction to start buying. But this is also valid for people who were not buying earlier so much because you indefinitely cannot go on buying at every dip because somewhere then that assumes that you have infinite money to put into the market which is never a reality. So technically yes from a shorter term perspective, yes but you have to be still wary of the global risk which may hit you and suddenly 5-7 per cent downward movement in the market cannot be ruled out.