India has been a late starter in the ongoing EM (Emerging Markets) recovery. While the tide started turning in Jan itself for other emerging market peers, for India, signs of green shoots in flows started showing up only in early March. FIIs in their rush to make up the lost time, started pumping flows fervently as if there is no tomorrow, mainly through their favorite mode i.e. ETFs. With daily buying of over half a billion dollars, overall net flows quickly surged to surpass early highs to touch $4 Bn+ within weeks. Not a surprise that much of this fast money flowed into select few favorite large cap stocks, very handful of them, as anyone can easily guess. Sensex surged and broke out of its resistance to scale near all-time high. So was Nifty.
What about broader markets? They too participated, but to lesser extent, as domestic institutions were more on the sell mode. More importantly, if the FII flows, after the initial surge, continue to trickle in a more steady fashion, the action could shift to the broader small and mid-caps. As in the past cycles, when the action shifts, the movements in the broader space could surprise even the most optimistic ones. That is the nature of broader markets. They surprise on the downside (as happened in 2018) as well as on the upside (as could happen in 2019). They are much less saner space than Sensex. At the same time, this lack of sanity is the precise reason why this space offers seductive long-term returns for seasoned investors.
As the action shifts, the coming broader play could set off many stocks on fire. This could happen either pre-election or post-election on a back-ended fashion. But whenever it happens, it will be reward time for anyone who has patiently built the portfolio brick-by-brick during the long and deadly winter of 2018. Hope the rewarding time is not too long.
Happy Value Investing!!