stock market: Housing market revival to lead to broader capex revival

It will take two to four quarters for the broader capex cycle to be seen but we are seeing some initial signs of it, says Mahesh Nandurkar, MD, Jefferies.


Every bull market normally goes through a 5-10% correction and that is considered as par course. But this bull market which started in April 2020 has not seen a single 10% correction. What is so unique about this bull market? The &P has not corrected even 5% at a stretch from November! Isn’t that crazy?
This type of unidirectional movement in the market has not really been observed in the past. And it is basically just the coordinated efforts of all the global central bankers and the continued belief that this is going to be this way, but to be honest with you, I do not really have a very specific answer to this very unidirectional move that we have seen. That is the reason why I feel that the longer the market runs in this unidirectional manner, greater are the chances of the type of correction that you talked about.

While the market can be unidirectional, at some point we are going to stall. We cannot continue at the same pace on a daily basis. What are you making of the sectoral churn and also the churn within sectors? Within banking, ICICI Bank, SBI is taking leadership and HDFC Bank has begun to catch up since last month. But Kotak Bank continues to lag?

What we have been seeing is that the thought process of the global investors and also the local investors has changed. We are assuming that growth is going to revive and so the kind of premium that the market was willing to give to the predictability and the stability of growth which was enjoyed by a lot of defensive plays is not there anymore.

The market is rewarding those companies and those stock prices which were impacted first when growth was slower during the second half of last decade and also where there is some sense of risk appetite and where the companies can benefit from the economic revival, the cyclical revival that we have been talking about.

That is going to be the case going forward as the growth outlook is definitely looking better. We are quite optimistic on the economic outlook. I am very bullish on the economy. The economic revival is just around the corner. We are already going through it but I just believe that the economic cycle and the market cycle have to be differentiated. So while I am very bullish on the economic cycle I am not so bullish on the market cycle at least in the near term.

I guess that is what explains your capex overweights which are heavily skewed within the capital goods segment. You have L&T, Siemens, and ABB?
Yes, that is right. We believe that the housing market revival will eventually lead to a broader capex revival as well. We are already seeing some initial movements on the infrastructure side within the corporate cycle side as certain industries like steel are driving the capex, PLI is going to drive a few things, data centre is a new emerging theme but the broader capex cycle is…