Dipen Sheth believes if there is a selloff from foreign investors on a sustained basis, there will be very little support for the market because they don't see macro situation improving.
Though there is a distinct possibility of Indian equities seeing a sharp correction, but there is no solid reason as well for the market to hold at current levels, says Dipen Sheth, head-Institutional Research, HDFC Securities.
“Domestic investors have been net sellers. Foreign investors don't see the macro situation improving, if there is a selloff from on a sustained basis, there will be very little support for the market,” he told CNBC-TV18 in an interview.
Meanwhile, he sees no steam left in outperforming sectors like fast moving consumer goods (FMCG) stocks and advises investors to book out of them.
Below is the verbatim transcript of Dipen Sheth's interview on CNBC-TV18
Q: Last few weeks have been quite dismal for the market but is there a possibility of more damage ahead?
A: There is a distinct possibility that after the economy got into a hard landing mode, the stock markets are headed for a similar outcome. It doesn’t sound very encouraging to suggest that markets should crash, but I am trying to fish around for reasons why markets should sustain at these level and I can't see too much of rational ground. I would want markets to stay up, but I cannot see the logic why they should.
Q: What could drive the declines because a lot of people are clinging on to the hope that the few 10-12 stocks that have managed to support the Nifty, will continue to support the Nifty going forward? Do you see cracks appearing in sectors that have been relatively insulted so far?
A: Yes and no because some corporates are reasonably immune to a broad macro economic downturn. The question is how long they can continue to be here. So, in FMCG the consumption story was playing out courtesy higher government spending and resilience driven by demographics. Some of that is now being questioned especially in the view of higher valuations.
Some of the private sector banks were highly valued versus their PSU peers and the reasons were very clear whether it was in terms of asset quality or in terms of business growth. Some of that has come under cloud in recent times.
For a long time people didn’t believe in the IT sector and surprisingly a bit of depreciation in the rupee has led to a slight revival in environment for IT services. We saw the sector coming back from 10-11 times kind of multiples. So, you need to get very selective and find rational grounds for stocks to hold up. Where they have held up so far and you cannot find additional ground you should get out. I would suspect that FMCG is one such spot.
A: It depends what investors you are talking about. Domestic investors have seen almost continuous outflow of money from their funds and therefore, they have been net sellers if you look at broader intervals
On the other hand, the foreigners have been buying and some of the logic behind that buying is coming into question now. Should there be a selloff from foreign investors on a sustained basis, there is very little by way to support the market because they don't see anything on the policy front, they see the currency weakening, they see macros worsening, they see earnings downgrades. They see return on equity (ROE), return on capital (ROC) coming down so the multiples they want to give might need to come down seriously. If there is a rush for the exit, I fear we are in bad times.
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