Participation from many investors is on a lower side, which means there is a lot of liquidity waiting on the sidelines and companies are indicating better growth in the near future, Hemang Jani, Head, Equity Strategist-Broking & Distribution, Motilal Oswal Financial Services, says in an interview to Moneycontrol's Sunil Shankar Matkar. Edited excerpts:
Q: The market has rallied by 41 percent from its March lows and the majority of indices saw 80-90 percent of stocks in the green. What are your thoughts? Are we entering a bull-run after a bear phase?
Market rallies across the globe from the bottom of March has surprised most of the participants. It’s driven by a combination of:
>> liquidity infusion by the US and other economies
>> better growth visibility for some sectors and companies versus earlier expectations and,
>> incremental positive data points on unlock, particularly from banks, NBFCs, auto companies & consumer companies.
Q: Most experts say the market starts pricing in events six-month before they happen. Do you think the market has started discounting 2HFY21 earnings and economic growth and hoping for no virus issues in 2021?
Currently, the market is looking at short-term incremental data points on moratorium, credit collection, auto sales, power consumption, consumer product volume growth, etc and the trend is getting better across businesses, which is giving comfort to both companies and market participants. There is not much visibility for FY21, as the situation is still evolving.
Q: Auto was one of the reasons for the rally as experts feel two-wheeler and tractors sales in June were better. What is your take on the auto space and should one invest in the segment now?
The auto sector has shown a good trend in June across two-wheeler, tractors and passenger vehicles (PV). We prefer companies like Hero MotoCorp and Eicher Motors from current levels as their monthly numbers trend is better than the rest. M&M also is a conviction buy for us due to recent change of CEO and higher component of tractor business in overall EBIT. We feel one should avoid taking overweight position on the sector at this point as the sector has run up a lot.
Q: Do you think there is still some steam left in BFSI space, though it rallied more than 30 percent compared to 41 percent upside in the Nifty50 from March lows?
There has been delta change across data points in BFSI space in terms of moratorium, credit-cost guidance, funding cost and growth visibility versus what was feared. This is a high beta sector, where there has been a churn in the portfolios. We have a positive bias on stocks like ICICI Bank, ICICI Prudential, Bajaj Finance and HDFC.
Q: Do you see any chance of market hitting March lows again in the coming months?
Chances of new lows are low, as the world has seen the worst of the crisis and come to terms with it. Participation from many investors is on a lower side, which means there is a lot of liquidity waiting on the sidelines and companies are indicating better growth in the near future.
Q: Midcap and smallcaps also traded in line with benchmark indices. Do you think that midcaps and smallcaps (after underperformance in 2018, 2019) will outperform frontline indices in the coming years from now?
In June, midcaps and smallcaps have outperformed the Nifty after a long time. The Nifty was up 7 percent in June, whereas midcap index was up 13 percent. Looking at the trend emerging from post-COVID world, we think that larger companies will continue to grow bigger though there can be select opportunities in the midcap and smallcap space.
Q: What are key positive/negative triggers (global and domestic) to watch out for in the rest of CY20? Can these triggers bring a dramatic change in the market?
The intensity of the second wave of COVID, vaccine launch, liquidity flows and growth guidance from companies are the key data points for the markets.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.