A large part of the industry has been asking for rationalisation and some cuts in the GST rates for select pain points where growth has virtually come to a standstill, said Devang Mehta, Head - Equity Advisory, Centrum Wealth Management, said in an interview with Moneycontrol’s Sunil Shankar Matkar.
Q. So many stocks are hitting 52-week low, falling 30-40 percent in short span of time, is it bothering investors or is it a really buying opportunity? What is your reading?
A. At the expense of sounding cliché, let me highlight the fact that, it has been an extremely polarised market where half a dozen stocks have been lifting the indices high and your broader markets nowhere indicate the sentiment and prices of a life high market.
Fall in stock prices by a huge percentage or hitting 52 week low has to be seen in perspective of whether it’s due to some particular reasons, which has a drastic impact on the business of the company or it is just specific to prevailing sentiment of the market.
We are always on the lookout for opportunities, which fall under the latter category. The companies, which have shown consistent growth in earnings, is where the money has flown.
Q. Everyone knows that Budget is going to focus on growth revival, jobs etc, but what is your own expectations from Union Budget from market standpoint.
A. The expectations and hope for the economy and markets are obviously high as the mandate for the government has been very strong.
Nevertheless, it’s a difficult ask to strike a balance between reviving growth, putting extra money in the hands of people & maintaining fiscal prudence.
A large part of the industry has been asking for rationalisation and some cuts in the GST rates for select pain points where growth has virtually come to a standstill.
Of course, job creation will be the top priority along with addressing rural distress. Equity markets need to be vibrant as job creation & economic growth will require capital & divestment of state run businesses will also fetch better valuations.
Q. A month back everyone was expecting it would be midcaps year, but considering current scenario, are you expecting 2019 to be a wash out year for midcaps or is there any light at end of tunnel?
A. After a washout year, there is a good probability of mid caps coming back to the fore.
But there has to be stringent filters in place to buy mid & small caps. A number of accidents in the past & some technical changes in terms of definition of market cap has eroded the sentiment.
Valuations for a number of good mid-sized companies have come to attractive levels and with stable government, low inflation, lower interest rates, the scope for appreciation & participation in this segment is high.
Q. Will banks continue to be preferred bets and is there a buying opportunity in frontline banks after debt crisis and NPA worries?
A. The corporate banks have carried the burden of higher earnings growth and leading the indices high in an environment where growth for a host of other sectors was very subdued.
Yes, financialisation as a theme can’t be missed out in a country like India, where the move from physical to financial assets has just begun and has a long way to go. Select private banks, both retail & corporate will still keep on growing well & with the slowdown in NBFCs, they would be beneficiaries of more business & less competition.
Q. What could be biggest risk for India -- US-Iran tensions which lifted crude oil prices, US-China trade war, liquidity crisis or something else and why?
A. It appears that current liquidity crisis has acted as a crisis of confidence among corporates and this has been a local sentiment dampener.
Global factors are as important to watch as the Foreign Investing community closely follows the trends of way forward for the trade war resolution and India -- US–Iran tensions. Crude has a substantial impact on India’s economic health & hence markets.
Q. Couple of sectors saw derating in last few months and one of them is auto. Are you a buyer in the sector or still wait for sometime to get dust settled down?
A. The slowdown in auto sector normally happens in a pre-election year as consumers want a bit of confidence before they venture out. However the slowdown has been more sharper than most people on the street would have anticipated. This got aggravated as new insurance norms and the NBFC crisis also had its impact on the automobile industry.
We are constantly monitoring the monthly sales data and the management commentary.
However for a long term investor thinking beyond a couple of years -- strong franchises and good businesses, you will either get good valuations to buy or good news.
The aspiring Indian consumer will at some point, sooner or later, may be post monsoon, revert to his consumption needs, may be essentials first, followed by luxury later.
Q. Companies which are highly pledged or high debt on their books or high exposure to cash strapped firms are started selling their stake to avoid defaults or maintain goodwill, is it indicating that we are near end of NBFC or liquidity crisis?
A. As I said earlier, this now appears more a crisis of confidence rather than only liquidity, which now seems to be decent. It is extremely difficult to predict whether it’s the beginning of the end of the crisis.
Markets have been quite punishing in case of high debt and/or other corporate governance lapses.
Market leaders and high market share retainers or acquirers with a visibility of sound business growth & robust earnings outlook across the spectrum of market capitalization will still command premium.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.