Investors have to be a little cautious jumping into this market. There are larger concerns over the US slowdown, Chinese demand and the expectations around the revival in corporate earnings and cues in the private capex recovery over the next few months/quarters, Mayuresh Joshi, Fund Manager, Angel Broking, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q. Do you think this is the dip which investors can buy into? What is your outlook on markets ahead of the Budget?
A. Investors have to be a little cautious jumping into this market. There are larger concerns over the US slowdown, Chinese demand and the expectations around the revival in corporate earnings and cues in the private capex recovery over the next few months/quarters.
With a rural-leaning budget likely this year, we should wait to see the impact on the macro finances.
Q. Are we heading for growth slowdown in the US in 2019 or a possible recession?
A. The US yield curve, which is a good barometer of a likely recession, has sloped downward. That has been a reliable indication of a likely slowdown in the past.
If the trade war between the US and China does not get sorted before March, then we could see the impact of a real slowdown in growth.
Already, there is demand contraction visible in China. IMF has projected an impact of 40 bps on global growth due to the trade war.
The big challenge for Indian markets will be global but don’t forget that there is scope for overspending by the government on sops to farmers.
Q. TCS and Infosys will kick start earnings season next week – what are your expectations from these 2 big names of IT sector? Also, IT topped the list in terms of sectoral gainers of 2018. Do you think the trend will continue?
A. The year 2018 was an advantageous year for the IT industry. The US showed signs of a surge in growth while the rupee was consistently weakening through the year. That helped IT companies to outperform. The year 2019 may be a different story.
The US economy is showing strains in manufacturing and the trade war could only exacerbate matters. Also, the dollar is showing signs of weakness and a dovish Fed policy may only add to dollar weakness.
The year 2019 would be mixed for the IT sector. Management commentaries surrounding the demand environment, digital investments adding more to the top line and sustained utilisation levels/reduced attrition might hold the key. So, sticking to revenue, EBIT margin guidance shall be paramount for the sector as a whole.
Q. Any top five stocks or sectors which you are recommending to clients for a period of more than 1 year?
A. From a longer-term perspective, we would focus on broad consumption themes, select banks/NBFC’s and Cement names.
Q. If there is a global slowdown, will India manage to sail through, given the uncertainty around upcoming general elections?
A. The political arena is wide open and most political pundits have been talking about three likely outcomes. However, the markets may still prefer a stable government so that the economic reforms process is not dented.
It would be presumptuous to imagine that India would be totally immune to a global slowdown. However, considering its low dependence on exports and a fairly large trade deficit, the slowdown should work in India’s favour.
Any global slowdown is likely to hit oil prices and that would benefit India’s trade deficit. It must be also said that Indian markets may be best equipped to decouple from the global volatility in the medium term.
Q. Retail investors have remained loyal to investing in equities via SIP route despite wild gyrations in 2018. A report suggested that equity funds have mopped up investments worth over $17 billion that makes the FII selling figure of $4.5 billion pale in comparison. Do you think the number could fall if volatility increases?
A. Equity mutual funds have seen consistent inflows in the last four years and that has helped Indian markets to hold on despite FII selling. The more critical data point is the monthly SIP inflow of nearly Rs 7,900 crore that comes into equity funds. However, there is room for caution.
Between 2009 and 2014, equity mutual funds saw net outflows each month. Any sharp correction in the market or a sudden spike in volatility can have a detrimental effect on equity mutual fund inflows.
Q. Enormous wealth has already been created in the history. The Sensex has grown like 100x in 32 years, at 15 percent CAGR. Do you think, 2019 will also give us a similar opportunity to enter and remain invested for a long time to create wealth?
A. In a long-term consumer story like India, equity is always the best asset class in the long run. The Indian GDP is still growing at a real rate of 7.5 percent. Even a 50 bps improvement will have an enormous impact on the market cap.
The consumption story in India is still intact and the capital investment cycle is yet to commence. Despite having an annual GDP of Rs 2.5 trillion, India has among the lowest per capita income levels in the world. This is one of the triggers for the consumer story. The answer is to remain invested in equities for the long term.
Q. What are your views on public sector banks after the recent RBI report suggested that the headwinds in terms of NPA mess could be abating?
A. PSU banks have exhibited relatively stable asset quality numbers along with strong traction on the recoveries/upgrades, improvement in PCR’s/risk-weighted assets to gross advances and selective capital infusion supporting balance sheet expansion.
Apart from the NPA cycle bottoming, there is another Rs 1 trillion to be recovered by banks through the NCLT process. The government is leaving no stone unturned in recapitalising these banks. Credit growth has been showing signs of a pick-up and if this sustains, PSU banks are better placed on the valuation matrix for an earnings revival.
Q. What is your call on small and midcaps for 2019? How one should choose the right kind of stock for investment?
A. The focus for 2019 must be more on specific consumption stories and bottom-up theories rather than broad themes like midcaps or otherwise.
The risk of small and mid-cap stocks will continue and will largely depend on the oil prices and the stability of the INR. We believe that year 2019 may bring with it heightened risks for mid-cap companies and investors need to be conscious of that.
Q. Given that Brent is trading around $55 to a barrel, what is your call on OMCs and aviation stocks?
A. Ideally, OMCs should benefit from low crude prices. It has already been announced that OMCs are not taking any hit on their margins due to lower global crude prices.
What the markets will be worried about is pressure on their cash flows to either declare special dividends, announce buybacks or initiating forced acquisitions and mergers. While low oil prices are good, this will remain a bid risk for OMCs.
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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