Dhiraj Agrawal, MD, Ambit Investment Managers, believes there could be more pain left in the stock market as he didn't think that the worst is behind but one can start investing selectively through stock picking. "I'm expecting the market to stay tough and narrow at least for another year or maybe two years. I won't say the worst is behind. I'm saying there'll be a difficult time ahead. It will be possible to find ideas to make money but finding ideas will be a lot more difficult than what it was in the last four years," the market expert told Business Today on Wednesday.
Agrawal mentioned that the tepid earnings growth outlook, the US tariff war and the likely shift towards the Chinese stock market remain three major headwinds for domestic benchmarks. "We are entering a phase of polarisation. I call India's market history a '535' cycle. We see 5 years of runway bull run, which is also a period of strong breadth in the market or very strong depolarisation where almost everything does well or at least 80-90 per cent of the stocks do well," he stated.
"After five exuberant years, we do 2-3 years of a tougher phase of the market, where it's possible to make money but it's polarised. At best, one-third of the stocks tend to make money or sometimes even less, if you look at reasonable returns. Broadly, one describes reasonable returns as around 13-15 per cent per annum where only 20-25 per cent of the stocks make money. Polarisation can be of two types. One is few sectors do well most sectors don't do well. I'm visualising a polarisation where it will be theme-less polarisation which means few stocks from almost all sectors should do well but a majority of the stocks in almost all the sectors will not do well. So, it's a very hardcore bottom-up fundamental driven market and mistakes will be very difficult to tolerate and will be punished badly," he also said.
Going ahead, predictability of earnings, quality of earnings and valuations will be the three key parameters to gauge a company stock's performance.
When asked to share his view on domestic and global companies amid the ongoing selloff, the market specialist said, "The world has become a little bit more uncertain. In the absolute near term, domestic plays perhaps will be the first ones to stabilise and rebound because as I said what Donald Trump has done is made the whole environment very uncertain. I mean nobody knows what the outcome will be. And in an uncertain market, people tend to pull back."
On the global side, Agrawal said the dust will also settle within a few months and we will be able to see a little bit more clearly what the "New World Order" will look like after these disruptions.
He advised investors that just strolling through different social media portals for stock tips will not certainly work for investors in the next few years. "I'm a big fan of Howard Marks and Michael Mauboussin. They always suggest that investing is hard work. This whole anecdotal investing can work sometimes but most of the time it is not likely not to work. So investing is hard work which requires deep analysis."
Either you can do the hard work, analyse the companies and find the winners or you can give your money to a professional money manager, whosoever you are comfortable with to do the hard work on your behalf or you can find an adviser who's doing the hard work, Agrawal underscored. "What will certainly not work in the next few years is watching Instagram(s) and YouTube(s) and investing. The next 3-4 years period will be that of number-based investing. Actually, 80-90 per cent of the time in the market is about numbers," he further said.