This is the right time as quite a few quality names are available at reasonable valuations. Moreover, the base will start softening in the second half of the year.
Auto stocks have been beaten down quite significantly and from a 3-year perspective, most will create value for the shareholders, Naveen Kulkarni, Head of Research, Reliance Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:Q: Slowdown is the buzz word which is echoing in markets not just in India but across the globe. What would be your points or suggestions to the Finance Minister to prop up the economy?
A: Economic slowdown to some extent is cyclical but the government can prop up growth by various direct and indirect measures.
Taxation in general for all the corporates has to be reduced to 25 percent as was promised during the first election budget in 2014. GST should be reduced in sectors like automobiles which are major consumption drivers.
Real estate is another sector where enough has not been done. The taxation on the sector that includes stamp duty plus GST continues to be very high.
Real estate is a very big driver of growth for jobs and has to be propped up significantly. Thus, the Finance Minister will have to consider multiple fiscal measures to drive growth.Q: RBI policy was pro-growth, but at the same time, the governor emphasized the transmission of rates. When do you think we would be able to see the full impact of the policy moves on the ground?
A: Typically, the impact of rate cuts is seen in the real economy with a lag of six months. However, the Indian economy could see more time as the transmission has been very weak.
On the 75 basis points (bps) rate cut, only 29 bps has been transmitted. It will take some time for the impact of rate cuts to be seen on the ground. We expect another six months for the meaningful impact to be seen.
Q: Should one wait for more dips or do you think the time is right to deploy the money for a minimum investment horizon of 2-3 years?
A: Yes, this is the right time as quite a few quality names are available at reasonable valuations. Moreover, the base will start softening in the second half of the year.
Q: Any stocks that you feel are good bets for 2-3 years.
A: There are quite a few ideas that look quite good for a 2-3 years perspective. Auto stocks have been beaten down quite significantly and most will create value for the shareholders.
Banking is another sector that continues to look attractive from a 2-3 years perspective. Axis Bank, ICICI Bank and State Bank of India are good to hold from a longer-term perspective.
Q: With the government’s emphasis on growth, do you feel that small and midcaps could see a turnaround in 2019?
A: Small and midcaps should see a turnaround over the next one year as valuations have become reasonable and market volatility too should reduce.
Q: Should investors avoid companies with high debt considering slowdown in the economy domestically and globally has taken a toll on companies?
A: There is no straightforward answer to this questions as a lot would depend on the quality of business, stage of the business cycle and many other factors. Companies with high debt have also delivered very good returns over the last two years notwithstanding the high degree of market volatility.
Also, it is important to note that the cost of debt is declining with the government lowering interest rates. So, a better way to look at this is companies that have lower capital requirements will grow their business.
Companies getting into a high capex mode will see challenges during periods of an economic slowdown.
Q: Some of the experts are recommending investors to focus on capital protection at this point. Is it time to increase allocation towards gold and maybe look at FD as part of portfolio strategy?
A: Capital protection is a good strategy in any market condition but stressed market conditions offer far greater opportunity for capital appreciation than trending bull markets.
Thus, it advisable to stick to quality during such market conditions and patiently accumulate stocks that will deliver capital appreciation in the forthcoming years.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. Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.