The Indian stock market remains range-bound even as investors remain cautiously optimistic amid developments related to the India-US trade deal agreement. D-Street experts say the lack of a formal confirmation has restrained fresh buying activity. However, domestic asset management companies are adopting momentum investing in the current scenario.
Notably, momentum investing thrives in volatile markets but requires agility and risk management to navigate potential pitfalls. The strategy involves purchasing an asset which has experienced a notable price or volume movement. How should investors play this cautiously amid volatility?
Speaking to NDTV Profit in an exclusive interview on Wednesday, July 9, market veteran S Naren, ED and CIO, ICICI Prudential AMC, believes that value investing in the domestic market will not work amid trade deal jitters and the first quarter earnings results. Naren claims that the Indian stock market is a 'long bull market' and investors lose patience when they don't receive decent returns on equities.
Also Read: Trump Tariffs & India: 'More Noise Than Substance' For 'Best EM', Says Julius Baer's Mark Matthews
Why does S Naren prefer momentum investing?
"This is a market where value investing wont work, but momentum investing will work. Today we are in a late cycle framework. In early cycle, you buy value. In late cycle, momentum works. Sectors will keep going up because earnings will keep getting revised higher," Naren told NDTV Profit.
While value investing takes a fundamental-focused approach, momentum investing operates under the premise that stocks that have exhibited strong recent performance are likely to sustain their upward trajectory, while those that have lagged are likely to continue their downward path.
Coming to equities, Naren believes that "every stock is discovered" in the Indian stock market. "There are so many brilliant stock pickers in India today that every stock is discovered. Best opportunities are coming out from stocks where investors are frustrated and hated. People like us are waiting for this kind of selling," said Naren.
The market veteran also believes that "whatever has happened on the Jane Street verdict is positive". "Traders and weekly settlement do not make the market, investors make the market," claimed Naren. Last week, the Securities and Exchange Board of India (SEBI) barred US-based quantitative trading firm Jane Street from accessing the securities market over alleged manipulated stock indices through positions taken in India's derivatives market.
Why S Naren seeks a fiscal push for the economy?
According to the market veteran, there has been no problem with investors, but the problem is with the economy. Earlier, the liquidity was tight and the government needed to give a fillip to the economy. "India has very, very good macro with low fiscal deficit and inflation." Naren added interest rates had to come down to make liquidity "very comfortable", giving incentive to the banks and other financial institutions to lend.
"So that's what the RBI has done," said Naren. The expert added that there has been no problem with the investor side of the economy. Equity markets, barring the last 3-4 months, has been good over the last 3-4 years." However, Naren warns that India's credit growth has to pick up and can't be "as low as 9%"
According to S Naren, a little bit of fiscal push is needed for certain parts of the economy. "A combination of interest rates cuts plus benefits in certain sectors like the two-wheeler industry, auto and FMCG sectors will lead to a massive boom in the economy," he told NDTV Profit. "If this happens, when the entire world is slowing down, India will be one of the accelerating growth stories," concluded S Naren.
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