Current rally is not just liquidity propelled momentum alone, says Satish Menon of Geojit Financial

A substantial chunk of the new (demat) accounts opened are from small cities and towns.

The present bull phase in the stock market is expected to run for a longer period with periodical corrections. This sustainable bull markets should be used as a buying opportunity to benefit over the longer term, says Satish Menon, Executive Director, Geojit Financial Services Ltd.

“We will start seeing an earnings recovery and margin expansion from the next quarter onwards. Also, the abundant liquidity in the system is going to be there for some more time though there are talks about scaling down of asset purchases by some major Central banks at some point of time,” he told BusinessLine when asked whether the markets are poised for another bull run with the Covid wave stabilising and more people being vaccinated.

Despite Covid disruptions, do you expect this upbeat trend to continue in FY22 as well?

I expect the bullish undertone to continue through this fiscal because the cash flow of companies, even those who were hit by the pandemic, will improve substantially from the second quarter onwards as the economy is expected to emerge out of localised lockdowns and the second surge in infection is expected to peak this month end. This positivity will far outweigh the negatives and will keep the indices stronger in the current fiscal.

The prices of almost all asset classes have ticked up despite the first and second Covid wave. How do you view this?

One thesis about the current phase of the bull market is that it is fuelled solely by the excess liquidity floating around thanks to the huge supportive fiscal and monetary policy, world over. But it only tells a part of the story since the market takes into account a whole set of other factors while setting its course such as economic recovery, earnings, macro episodes like inflation and fundamentals of the sectors/stocks. Therefore, what we are seeing is not just a liquidity propelled momentum but a rally based on fundamentals as well.

All assets continue to be buoyed due to phase wise rise in economic activity, easy money policy and high prices led by supply constraints. Lately, liberal rise in metal prices have increased risk of world inflation and rise in the US interest rates can be negative for the equity market. The recent fall in some commodity prices in the short to medium-term due to relaxation in supply constraints, will be positive for equities and moderately for gold and debt due to a stable economic growth cycle.

How are you planning to tap the rise in the participation of new age retail investors?

It is very heartening to see the increase in the people investing in the stock markets. There has been good growth last year of which a good percentage is coming from new investors who are relatively young. We are fully prepared to absorb this new tribe of tech savvy investors with a relatively higher risk appetite with different suits of products like our Smartfolio offerings and other services. Our endeavour is to teach them the mantra of long term disciplined investing.

Do you see an opportunity in the surge in retail participation in the stock market with the gravity of trade shifting from big cities to relatively smaller towns and locales?

That is a big opportunity that anybody who wants to remain relevant in the business cannot afford to miss. The beauty of the current market rally is that it is much more broad-based in terms of sectors and wider in terms of participation. In fact, a substantial chunk of the new (demat) accounts opened are from small cities and towns. We have been traditionally present more in the smaller cities and towns of India.

First published in The Hindu Business Line.