BQ Conversations: CK Narayan's Rulebook For Generating Alpha

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#BQConversations | Dalal Street expert CK Narayan shares technical insights. #BQLive

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00:00 Thanks for tuning into this conversation.

00:03 It's important to take stock of what some of the most experienced traders are thinking

00:07 about the markets at the current context wherein bond yields in the US are jumping up and US

00:13 markets and the global markets indeed have come off over the last few days.

00:16 Our markets are not in spared either.

00:18 Dr. Sikin Narayan Johnson to put it into perspective.

00:20 Dr. Narayan, thanks so much for taking the time out.

00:24 Thank you for having me.

00:25 Now the pleasure is ours.

00:26 Dr. Narayan, how do you look at the markets?

00:28 I mean, you had mentioned in this note that you write for BQ Prime that there could be

00:32 a period of some bit of choppiness ahead, say for the last week of September.

00:38 It's kind of panned out that way.

00:40 What is it?

00:41 How is what is the latest market action telling you both global and local?

00:44 Well, you know, as we got into September, we were, you know, as a part of a very strong

00:52 uptrend which ran slap into a bit of a resistance.

00:57 And that was one of the reasons why I said that we might get into a consolidation.

01:02 Second point was that I use a lot of time cycles and based on those time cycle studies,

01:07 I found that, you know, the balance of September, let's say, whatever 15, 20 days of September,

01:14 say for the last one week or so, as well as much of October.

01:20 So, totally, you could say some, you know, 35, 45 calendar days.

01:25 I think that period was not looking very bullish in the sense that I had very few days with

01:31 very strong bullish signatures.

01:34 So when that kind of situation shows up on the time cycle charts, then it has been my

01:42 observation that the markets get into a bit of a consolidation and become pretty choppy

01:48 as far as indices are concerned, leading since we were into a very strong uptrend.

01:54 So some amount of pullback was to be expected.

01:56 Once this pullback, I think we'll get into a consolidation, the market will get rather

02:01 boring and will become extremely stock specific.

02:05 So we have seen, say, about three sharp days of decline down with gaps, as it were, in

02:12 both Nifty as well as the Bank Nifty.

02:16 We have seen a lot of stocks getting damaged and that's more because individual traders

02:23 are having positions, long positions in stocks.

02:27 But in indices, I think the majority of the trading is in options.

02:32 So the option movement moves the indices to a limited extent, whereas long positions build

02:39 up to a substantial degree in individual stock futures.

02:43 I think that is getting around and that is why you're seeing a lot of damage in individual

02:48 stock.

02:49 So combined, the two are producing a little bit of, let's say, sentiment depression.

02:56 But I really wouldn't worry about it too much, except for the fact that we are not going

03:03 to have an immediate upside.

03:04 Now, if that is a cause of worry, then I think for the next several weeks, that is going

03:09 to stick with us.

03:10 But as far as the down move is concerned, I'm not overly worried.

03:13 I think very soon we'll hit a support level either by Monday or Tuesday.

03:18 OK, so you do believe that there is a possibility of a sideways market for the next few weeks?

03:27 Yes, I do.

03:28 I most certainly do.

03:31 And the initial portion has been down because we ended a nice strong uptrend.

03:35 So that is not a surprise.

03:38 Got it.

03:39 Now, the other piece, Dr. Narayan, is what happens at the broader end of the spectrum,

03:43 even as the Nifty and the Bank Nifty presumably consolidate, because that had an even sharper

03:47 run up the last three, four months.

03:49 So do we continue to see a bit of a corrective move there?

03:52 Well, I think corrections are part of the deal, right?

03:55 And everybody was waiting for corrections and now that we haven't, now the entire focus

04:00 is when is the correction going to get over?

04:03 That is very, very typical of the market.

04:05 But I do believe, you know, price cycles run their length and the time cycles will run

04:11 their length.

04:13 So I think the market will be in a corrective mode overall, you know, kind of across the

04:18 board.

04:19 But the caveat, if you may want to put it that way, is that come the second week of

04:27 October, we'll also start up on the earning season.

04:31 And once we get up onto the earning season, then it becomes very stock specific.

04:37 Stocks which will surprise the market will be rewarded or they'll be done if the numbers

04:43 are not good.

04:44 So I think till about the 10th of October, we might be in a very range-bound action.

04:51 And post that, we might get into a very stock specific thing.

04:55 But the choppiness of the market will still kind of remain.

05:00 But we'll have enough news flow and analysis flow and reports and all that to keep us all

05:06 busy that the choppiness may not really matter because we are quickly slipping during the

05:12 meat of the choppy time, we are slipping into the earning season.

05:15 So I think that will save the day.

05:18 Last couple of questions.

05:19 One is on pockets which have been hitherto underperformers.

05:22 If we are in a sideways market and if the results show OK, can they do well?

05:26 So for example, results notwithstanding, Dr. Narayan, what do the charts of IT tell you?

05:32 Well, IT was a bit down in the dump because they had dropped about 20-30% across the board.

05:41 So rally there was not anything out of the ordinary.

05:45 But I think the way this hire for longer business which is being now, I think being accepted

05:52 across the US, I don't believe that we will see very good commentary coming out of the

05:58 IT companies.

05:59 And I don't see this rise which is happening in IT as anything of a larger kind.

06:07 So my sense is that if your IT stores go higher for whatever reason, maybe in anticipation

06:15 of results or whatever, I think it will be a good chance to exit from some of the less

06:22 performing items.

06:24 This may also include the leaders.

06:26 I think there are some exceptions which are more in the mid-cap area, your KPITs or your

06:32 Zensark tech or your one or two persistent systems and all of that.

06:38 Depending upon what commentaries come there, more than the numbers.

06:42 I think nobody doubts the numbers.

06:45 And all IT companies are cash rich.

06:47 So they are not going to fall into a heap.

06:49 But if buyers are not going to step up, then they can just drift like they have drifted

06:54 down 30%.

06:55 It will not surprise me at the end of the rally, they drift back again another 15% from

06:59 the height that they reach.

07:00 So I am not bullish on IT.

07:02 Not bullish on IT.

07:03 The other thing, Dr. Narayan, that has confounded a few people is the weakness in private banks,

07:08 relative weakness or in certain cases like HDFC Bank, absolute weakness too.

07:13 Now do the charts indicate downside there?

07:17 Do they indicate consolidation or at some point of time, time cycle wise or otherwise,

07:21 that there could be some bit of an uplift there later on?

07:26 See undoubtedly, the view of the market towards the financials is still very, very bullish.

07:34 HDFC Bank, you know, post the merger, there's been a lot of chit chat that analysts made

07:39 which came and now reports are coming out, etc.

07:43 But then if you take, let's say, a 10-year or a 20-year return from HDFC Bank, that will

07:50 go into some 5000% or some obscene figure like that.

07:56 Given that as a background, I don't see people dumping HDFC Bank, even if the next, you know,

08:01 two, three quarters are not going to be good.

08:03 Because of the pedigree of the bank and because of the way they have, you know, worked at

08:07 it over the past decade or more.

08:10 I think the sense of confidence in HDFC Bank pulling it through is very, very high.

08:15 So, okay, the stock may drop down to some 1400 levels and all that as a part of a reaction.

08:21 The key thing to see is two parts, whether the very large ownership in HDFC Bank, does

08:27 it shift to the other banks?

08:29 Notably, I would think ICICI Bank would be the prime candidate and the trends there currently

08:34 are much better than ICICI Bank.

08:38 So my sense is that yes, some amount of money will go out of HDFC Bank and get into ICICI

08:44 Bank.

08:45 But I think this, you know, the inclusion in the JPM list and all that, and that is

08:57 going to really benefit public sector banks.

09:01 And then the trends in public sector banks stocks have been fantastic and they continue

09:05 to remain patent and they are actually seeking higher prices.

09:10 State Bank has been a bit of a laggard.

09:12 We'll know the reasons for it as we come along.

09:14 But then there are stocks which are picking up very, very well indeed, Canbank, Bank of

09:19 Baroda, you know, stocks like that and even second tier banks like Karur Vaishya and so

09:24 many others to name.

09:26 I think the focus of the market will shift there.

09:31 Everybody has been focused on the private sector bank.

09:34 Why?

09:35 Because there has been such a huge focus in the option based trading in both Bank Nifty

09:41 and Fin Nifty.

09:42 And these private banks are used to move the indices on a weekly basis.

09:48 So there is a lot of additional or ancillary movements which are also associated in the

09:55 private bank.

09:56 But I think fundamental shifts in the PSU banks, which do not have that much weightage

10:00 in Bank Nifty today, but I think that's a matter of time before some of them get better

10:04 weightage and people shift their focus.

10:07 And if a stock from PSU banking or the second tier banking, let's say the other federal

10:13 banks and the likes of that, if they are all showing you promise of going up, whatever

10:19 20, 30, 50, 100%, then I think the market is not going to shy away from them.

10:25 And private banks may go into a long consolidation and things may shift towards the PSU banks.

10:30 So I'm very bullish yet in PSU banks and very selectively in private sector bank.

10:35 I see the bank being the main one.

10:37 Got it.

10:38 Dr. Narayan, always a pleasure talking to you.

10:40 Thank you so much for taking the time out and being with us today.

10:43 Thank you once again for having me.

10:44 The pleasure was ours.

10:45 Viewers, thanks for tuning in.

10:46 [MUSIC]

10:56 (dramatic music)

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