Sectors dependent on consumption like autos, consumer durables, etc. are expected to perform better given the overall improvement in consumer sentiment and easing off of GST-related issues that had plagued previous quarter numbers, Nitasha Shankar, Sr. Vice President and Head of Research, YES Securities (I) Ltd said in an exclusive interview with Kshitij Anand of Moneycontrol.
Q) Market hit a record high in the run-up to Diwali. What is the way forward?
A) The Nifty and Sensex hit record highs just ahead of Diwali, uplifting the moods of the market participants.
Strong liquidity is fuelling the rally that we are witnessing in the markets at the moment. It is expected to continue to remain strong going ahead as well which will take market indices even higher.
Q) Top sectors which will lead next leg of the rally on Indian markets?
A) We believe that the next leg of the rally would be led by consumption driven sectors like autos and consequently auto ancillaries, consumer durables, retail and other consumption-related sectors.
Q) The H1FY18 is over and the S&P BSE Sensex rose just over 10% and for the year it has gained a little over 22%. The large part of the rally was led by small and midcap stocks. What is your view on the broader market should investors book profits in small & midcaps stocks?
A) Valuations, at the end of the day, are determined by factors such as quality of earnings, predictability of those earnings and staying power of companies.
Instead of classifying stocks as mid, small or largecap in nature, one would do better to look at valuations in conjunction with quantitative and qualitative aspects like financial ratios, balance sheet strength, stance in industry, pricing power, the changing industry dynamics, and competitive pressures, among others.
Q) Slipping macros is something which is troubling market participants at the current juncture. Do you think this will cap upside for Indian markets or these fears are unfounded?
A) These are just short-term aberrations brought about by the introduction of reforms, etc. We believe that it would be more prudent to look at the longer-term outlook for the country which continues to remain healthy.
As benefits of the reforms start to translate into on-the-ground benefits, these aberrations would disappear to be replaced by a healthy overall growth.
Q) India has already started to declare earnings for Sept quarter. Do you expect a recovery in earnings in this quarter?
A) We expect the recovery to be patchy and sector-specific. For instance sectors dependent on consumption like autos, consumer durables, etc. are expected to perform better given the overall improvement in consumer sentiment and easing off of GST-related issues that had plagued previous quarter numbers.
However, sectors like IT and pharma are expected to continue their underperformance given the overall structural issues haunting these sectors. Therefore, performance at an index level may end up being flattish.
Q) What is pushing foreign investors away from Indian markets? They sold about Rs 11,000 crore from the Indian equity markets in September.
A) This is related to geopolitical issues, particularly those related to North Korea, which led FIIs to reallocate money towards safe havens. Over time as India continues to provide better yields, we expect this trend to reverse.
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