The current market rally shows no signs of slowing down. While a correction is expected, its extent is uncertain. Experts believe that a correction, if it happens, is likely to be to a smaller degree.. one that would present buying opportunities at lower levels. However, the Indian market rally did not reach its peak, possibly due to the under participation of large caps in this leg of the rally.
Deven Choksey, Director, DRchoksey Finserv Pvt Ltd feels that the next two to three months will see greater participation by large companies such as HDFC Bank and Reliance Industries. For investors who are left with a feeling of FOMO (fear of missing out), his advice is to focus on the long-term prospects of the Indian market and to start investing gradually without attempting to time the market.
Edited Excerpts:
Markets are at an all-time high and the rally continues unabated. Do you expect any kind of meaningful correction to kick in from here? Or would you say we are headed higher from here?
Well, I think on one side, the market is expecting corrections but one is not very clear about the degree of corrections. On the other side, the fundamentals continue to be strong in the economy. The economy is counting on several positives. Growth is positive, tax collection is positive, new money flowing into the corporate sector is very positive, government spending on infrastructure is also positive. If you count the list of positives, I think we have quite a few of them. As a result, the market is basically in no mood to give up, especially since the news flow from the Western world is also turning favourable.
So, to a great extent, I would think that even if the correction comes, that correction would be to a smaller degree. And that correction will be a price correction, which will give an opportunity to buy at lower levels. Another important trend emerging in April, May, and partly in June, is that the midcaps are probably drawing the entire market and the valuations of midcaps have reached newer heights. People have made money by not booking profits in midcaps and in those two or three months, I think the large caps have been largely neglected.
Larger companies like Reliance and HDFC Bank were neglected. Now you are seeing the possibility of money flowing into larger companies because funds are coming into big portfolios. At the same time, I think the larger companies would allow them to absorb this kind of weak flow of money. So, my belief is that in the next two-three months, we should be seeing a larger participation of bigger players, ETF (exchange traded funds) players.. they will be parking money into some of the large cap companies. So, indices going up because of the sheer weightage of large cap companies is a given. And that is where you would see the rally continuing and the market index peaking to newer heights.
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Despite clocking strong growth, HDFC Bank has been underperforming the Nifty over the last three years. Now that the HDFC-HDFC Bank mega merger is complete, do you think HDFC Bank will emerge as one of the top performers in the second half of the year?
There are a few reasons why I think that could possibly happen. One of them is that post-merger, it’s the fourth largest bank in the world. I guess this is where it becomes a compelling proposition. Because if the global players were earlier looking at standalone HDFC or standalone HDFC Bank, they were probably not putting in as much money as they will now, in the larger unit. So, as a result of this, I think money will flow into it.
The second most important factor is the 20 percent credit growth continuing for some of the corporate banks including HDFC Bank, be it in the weight from the corporate sector, be it from the retail sector, be it from the housing finance business or for that matter, the priority sector. I think the 20 percent growth is continuing for the lender. That is where I believe that in 3.5-4 years’ time, you develop the visibility on doubling the size of the balance sheet. The combined balance sheet at the end of FY24 For HDFC-HDFC Bank combined, the aim would be somewhere around Rs 23-24 lakh crore. If this is compounded at the rate of 20 percent then possibly in the next four years the size of the balance sheet will be in the vicinity of Rs 45-50 lakh crore.
So in that kind of situation, there will be a compelling proposition for most of the global investors to buy into HDFC Bank. So, the current rally is just the beginning as in the last 3 years, HDFC Bank has not participated. This is all the more reason for HDFC Bank to participate now in the current rally.
Your thoughts on Reliance Industries. On a YTD basis, it has underperformed the Nifty, do you expect the stock to make a comeback and emerge as one of the leaders of the market rally?
In the last three months, large cap stocks haven't participated in the rally, and Reliance is included in that for a variety of reasons. The fundamentals of Reliance are absolutely strong and convincing, be it Jio where a 20 percent rate of growth is continuing or be it the retail business, where around 15 percent compounded growth is continuing, or for the oil and gas business and refining and petrochemical business as well, growth is continuing at a steady pace.
If I look at all this, I think Reliance would have invited participation much earlier but it did not. The larger funds, ETFs did not bring in enough money as much as they're bringing now in the last week or 10 days. So from that point of view, in my reading, I think Reliance will start participating in the market purely from a technical perspective.
From a fundamental perspective, I think the company is rolling out different business models; Jio Financial Services is being rolled out, we are seeing the 5G migration taking place in Jio Platforms, where I believe a larger number of customers would be brought in and at the same time, higher amount of average revenue per user will be coming in. So, all in all I believe for a company like Reliance, there is a case for a 20-25 percent rally from current levels.
What’s your advice for those who have missed the bus on this leg of the rally and are left with a feeling of FOMO?
I would always say that the Indian market offers you the visibility for the next 10-15 years. With that kind of visibility available to you, every dip or fall will offer a great buying opportunity. We have been shouting from the rooftops in February and March, that this particular fall in the market is technical in nature and has nothing to do with the fundamentals of companies.. and we were proved right as we saw a market rally in subsequent months.
So, my advice to investors would be, since good quality stocks are available in the market, I think some of the large tech companies which have been neglected and are available at a compelling proposition, should be invested in. One can start investing gradually and every month you can put in some money through SIP in direct equity. So, that will probably help you in building your portfolio. But investment is a must. I think you should not be timing the market. You should be timing your investment, I think systematically on a month-on-month basis.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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