Few thoughts on Indian markets

30 Aug 2022

People keep asking about my views on the markets. I’ve been at it for ~25 years & I don’t have a clue. I usually say whatever the current trend will continue, as that is most probable.😃 But over the last year, I’ve been consistent that India will most likely outperform.

By outperforming, I don’t mean our markets will go up, but we will probably not fall as much as others. And if we don’t fall as much, we will probably outperform on the upside.

This is because of negligible leverage in our markets & all the folks waiting to invest in India.

In bearish times, when buying interest is low, forced liquidation of leveraged positions creates havoc. The down moves are exaggerated, as we have seen in highly leveraged markets like the US or even Crypto in the last 12 months. Btw, this also creates spikes on the way up.

After all the regulatory changes in the last 2 years by SEBI that reduced leverage, there hasn’t been an instance when our risk team had to square off the positions of a large group of customers due to MTM losses. The risk team has been complaining about much lesser work. 😃

Also, most active leveraged trading activity in India has moved to indices which are much less volatile than stocks and hence lesser need to force close positions. No forced squareoff = lower volatility = lower exaggerated moves on the downside when markets turn bearish.

Almost every time markets gap down, we’ve seen more investors logging in; historically, it was the opposite. I guess this means huge buying interest. Even on the institutional side, local & foreign, private & public, there’s a lot of interest in India compared to others.

But, in an interconnected world like what we live in, if the US bear market continues, there is no way we will be able to escape. We will eventually most likely follow the trend. But I guess we will continue to outperform on the downside & be less volatile.

My neutral to slightly bearish view on the broking industry is because of what has been happening in the US over the last year. To do well, we need a bull; bear/neutral isn’t enough. Also, dunno how many Indians who can invest aren’t already doing it.

I think the trade for the last year or so, which continues for the above reasons, has been Long India, Short US & other emerging markets. But since I am publicly posting it, maybe this will come back to bite me.😬

View on Twitter →