Nirali Shah, Head, Equity Research, Samco Securities thinks a 3-5 percent correction will be healthy in the near time and investors can use the dip to invest and bring down their average cost price.
In an interview with Moneycontrol’s Kshitij Anand, Shah says some mid and smallcap stocks may underperform in the near term but in the long run, outperformance can be expected. Edited excerpts:
What a week for Indian markets. The US Fed's hawkish stance stopped the bulls in their tracks. What led to the price action?
The week started on a bullish note but gave up after US Fed’s hawkish stance. A sooner-than-expected hike in the interest rate timeline does give the RBI something to ponder upon, given that just two weeks back they were still dovish.
India’s May retail inflation numbers came in at 6.3 percent above the RBI’s target inflation and WPI inflation is also rising sharply.
What is driving inflation is the decline in bank deposits (savings) and rising discretionary expenditure towards services and products other than essentials.
This along with some amount of profit-booking led to a healthy correction this week.
India Inc is showing signs of recovery and with states rolling back restrictions, we may be headed for full recovery in the next few quarters. In case we do get a dip, what is a healthy dip that investors should not worry about?
As the second wave started receding towards the end of last month, states have been relaxing curbs and mobility restrictions across India, which has been the primary driver of economic trade activity picking up.
Also, the consumer-side of demand is starting to pick up as people moved on to reallocate their savings and funds towards normal spending. These twin factors are key drivers for the overall recovery.
But, markets are discounting all these future earnings growths even in the distressed sectors, which could face hindrances in case of a third wave.
A correction of 3-5 percent would be considered healthy in the near time. Investors can use the dip to invest and bring down their average cost price.
Do you think we have made a top in the Nifty and are the chances of consolidation much higher? What are the levels to watch out for?
The Nifty50 had witnessed four consecutive weekly green candles before closing negative this week. With high uncertainty due to the third wave and new delta variant, the benchmark index has been rising on slow momentum.
As the market remains over-bought over the short term, the Nifty index could consolidate for a couple of weeks. There might not be a major decline immediately but profit-booking cannot be ruled out. Immediate support and resistance are now placed at 15,350 and 15,900 levels.
What is your call on the broader market space? Do you see small and midcaps underperforming? With cheap money slowly receding, is the time of easy money-making in small & midcaps behind us?
Liquidity strength is expected to drive markets higher in FY22. During bull markets, mid and small caps rise faster than large-cap stocks, while during bear markets, they are the first to crash.
Since we are currently in a bull run, there is still good potential for a number of specific mid and small-caps to outperform benchmark stocks in the coming year.
Having said that, in the near term, due to some fluff in valuations, some of them might underperform and witness corrections. But from a broader index perspective for a longer horizon, there is definitely scope of outperformance from mid and small-caps.
What led to the price action on the sectoral front?
Agrochemical stocks remained in focus this week following the cabinet’s approval for a hike in DAP subsidy. The government is making available fertilisers, namely Urea and 22 grades of P&K fertilisers to farmers at subsidised prices via fertiliser manufacturers/importers.
In the recent few months, international prices of raw materials of DAP and other P&K fertilisers have increased sharply by 60-70 percent. Accordingly, some companies increased DAP prices in India. Currently, one bag of DAP costs Rs 2,400.
The government's decision to increase the subsidy per bag by Rs 700 to Rs 1,200 has ensured that the farmers are able to procure DAP fertilisers at the same rate of Rs 1,200 per bag, which has kept the momentum going in these stocks. Investors can look to enter leaders in the space on dips for a good upside.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.