Expert view: April to be a volatile series; Nifty could hit 23,000 on the upside, says Rahul Ghose of Hedged.in

Expert view: Rahul Ghose, CEO of Hedged.in, expects the April series to be volatile on account of the start of voting in some parts of the country. In an interview with Mint, Ghose discussed the impact of General Elections on markets and how retail investors can make money in this market. Edited excerpts:

What is your view on the current market structure? What are the key levels to watch out for in the April series?

The next 12 months will see a period of consolidation in the indexes in India. The bottom end of this consolidation in Nifty would be 19,000 and the upper end of the consolidation would be 24,300. 

Coming to the shorter term, I expect April to be a volatile series on account of the start of voting in some parts of the country. 

Also, the last month has been fairly a consolidation style month with Nifty being in a narrow range. 

The levels for this series would be 23,000 on the upside if see a bullish candle closing above 22,500, on the downside a close below 21,800 again can lead markets to the 21,200 level.

How could the outcome of the General Election impact domestic market sentiment?

The General Elections in India are not only a significant political event but also a crucial factor influencing the equity market sentiment. 

The outcome of these elections can have a profound impact on various sectors and stocks, shaping the investment landscape for months to come.

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Political stability would likely lead to policy continuity, which could bode well for market sentiment. 

During a potential third term for Narendra Modi, we would expect further progress towards digitalisation and continued policy push toward manufacturing and exports, given India's increasing footprint in global value chains.

The recent opinion polls continue to suggest that the BJP will perform well in the general election and based on these polls, Prime Minister Narendra Modi remains the most popular leader in India. 

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The recent performance in assembly elections also suggests that (a) the ‘Modi factor’, (b) the perception of the work done, and (c) the implementation of welfare programmes have worked in favour of the BJP. The government has refrained from turning populist and remains on the fiscal consolidation path in the run-up to the 2024 election.

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The market sentiments can be varied depending on the three possible scenarios.

Scenario 1: BJP wins with a thumping majority (single party majority)

In this scenario, the government will focus on policy continuity which bodes well for business sentiment and much anticipated private corporate capex recovery. 

According to media reports, the BJP seems to be already working on a 100-day plan for immediate steps to be taken once the new government is formed for the 'Viksit Bharat 2047' (Developed India) plan's quick execution. 

In addition, the implementation of supply-side reforms could pick up including clean energy transition, increase in infrastructure spending (both digital and physical), manufacturing push and other targeted policy initiatives (towards youth, poor, women and farmers). 

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BJP being the single-largest party, fiscal prudence will be maintained, infrastructure will get priority, the digitalization push will accelerate, while the disinvestment policy push will continue.

Moreover, this scenario will also likely further boost foreign direct investment (FDI) and PLI schemes, while the rural economy will be supported with more focus on structural reforms. 

The implementation of the Uniform Civil Code will get a priority and there may be another attempt possibly to introduce the Land Acquisition Bill. 

Interestingly, there is a possibility that markets may not rally as much if this scenario plays out, as most of this is already factored in with the index close to its all-time high levels.

Scenario 2: BJP-led coalition

In this scenario, reform momentum could remain broadly similar, but some tougher ones may not see much progress and/or are likely to be put on hold, including disinvestment, Land Bills and Uniform Civil Code. 

However, comfort over fiscal discipline would be less of a concern for investors even in this scenario. Markets could mildly correct and then stabilise if this scenario were to play out.

Scenario 3: Weak coalition led by the INDIA alliance

The economic policy approach could be largely aligned but the markets could have worries about fiscal discipline, and less decisive government leading to lags in implementing supply-side reforms. 

There could also be a delay in the private corporate capex recovery from weaker business confidence because of a surprise political outcome. 

This scenario can be the most destructive for the equity market sentiments. 

A fall in the range of 15-20 per cent cannot be ruled out if this scenario plays out, the probability of which is quite low.

Can you expect Nifty Bank to see fresh momentum in the coming months? What are the key levels for the index?

Yes, this is on the cards. We can see another 6-7 per cent rally in the Bank Nifty index in the coming months, or in other words, we can see 50,000 levels on Bank Nifty this calendar year. 

This view will only get negated if we see a bearish closing below 44,100 on the index.

Please throw some light on Hedged-style investing. How does it address market volatility?

The biggest mistake that the retail population makes is that they are always trying to predict markets. 

They feel that it is easy to do this and rely on simple indicators. 

They expect that these will help them go right most of the time. 

It is very important to understand that no one including Mr. Buffet gets it right all the time! 

Hence it is prudent to stay protected concerning one's positions be it in trading or investing. 

Concerning trading, no matter how confident you are with your trades, always use offset units as Hedges to protect the flipside. 

Concerning investing, if you have a portfolio, remember to use long-term options spreads to control the downside and volatility, especially more so during such big events. This is something we strictly follow at Hedged.

What strategy should one deploy for the mid and small-cap segments at this juncture?

After a one-sided rally in mid- and small-cap stocks, such a fall is not worrying, but in fact, a welcome one as the valuations get more reasonable. 

There are indications that the Indices may fall further, but if the company you own is backed by solid fundamentals and earnings, eventually it will recover and there is no need for this panic.

The fall is primarily because of three main reasons:

First, a warning to mutual fund houses, asking managers to slow down the fund flow in small- and mid-cap funds.

Secondly, some mutual funds themselves stopped accepting fresh funds due to a “ lack of adequate investible opportunities”

Thirdly, most fund managers like large caps more as valuations look more attractive in that space. 

The small-cap indices are trading at 28 times their EPS (earnings per share) compared to their five-year average of 25 times whereas the mid-cap index is trading at 32 times its EPS compared to its five-year average of 28 times.

Thus to reiterate, it all depends on the quality of the stocks you own in this segment. 

If the earnings don’t justify the PE (price-to-earnings ratio) multiples, one often sees markets punishing this segment brutally. 

But if the stocks you have a fundamentally sound business, cut out the market noise and hold on to them from a longer-term perspective. 

Consider the crashes as a godsend opportunity and add on to the existing ones.

What are some areas you are positive about? Is there more steam left in domestic themes?

Financial inclusion is a theme that has gained traction in recent years, with the government's push for initiatives like Jan Dhan Yojana and digital payments. 

Companies offering financial services, especially in rural and semi-urban areas, are expected to see growth as more people gain access to formal banking services.

Healthcare is another sector with immense potential, given the increasing focus on affordable healthcare and wellness. 

Companies involved in pharmaceuticals, hospitals, diagnostics, and healthcare technology are likely to benefit from this trend.

India's digital transformation is accelerating, driven by initiatives such as Digital India and the growing internet penetration. 

Companies in the IT sector, especially those focused on digital services, e-commerce, and fintech, are well-positioned to capitalize on this trend.

While some of the stocks in these themes have already run up, they remain the best investment bets from a long-term perspective and any decline should be looked at as a buying opportunity.

How can retail investors make money in this market?

I would advise the use of certain strategies that are not vanilla in nature depending upon what view one has in the market. 

For example, if their view is sideways, look for a short straddle using monthly options, but take offset hedges using the first weekly expiry or the second weekly expiry in the Indexes.

If the view is bullish, Instead of going with naked Futures, look to go with a Hedged put along with the futures contract.

If the view is bearish, look to do a cross-card spread where we buy the monthly PE and sell the weekly PE at the point where the premium of the monthly PE ends.

Such small nuances will help you keep your emotions in check as you are Hedged from a move adverse to your view. 

Also remember that it is not always possible to be right in view, in such situations, having hedged legs limits your loss and makes you armed to fight another day.

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Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.