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Last Updated : Jun 16, 2019 09:42 AM IST | Source: Moneycontrol.com

D-street's near-term risks are monsoon, fiscal policies in Budget and global trade

Risks are always there in the market be it known or unknown, but ultimately, for investors, power of earnings leads to the joy of power of compounding over medium to long term, says Kartik Mehta

Kshitij Anand @kshanand

Risks are always there in the market be it known or unknown, but ultimately, for investors, the power of earnings leads to the joy of power of compounding over a medium to long term, Kartik Mehta, Vice President – Fund Management - Equity, IDFC AMC, said in an interview with Moneycontrol’s Kshitij Anand.

Q) A 25 bps rate and a dovish stance from the Reserve Bank of India (RBI) suggest that everything is not hunky-dory for the Indian economy. Do you think the RBI should have done more in its policy meeting to push growth and investment in Asia’s third-largest economy?

A) RBI has been taking calibrated measures to sustain and promote growth driven by investments and consumption without compromising its inflation targets.

Close

Since the Union Budget is very close, it is always better to monitor fiscal policy. Ideally, both fiscal and monetary policies should go hand-in-hand and complement each other.

Q) When we hit record highs of over 40,000 on the Sensex and over 12100 on the Nifty50 – valuations were a concern. Do you think the investors have got reasons such as a deteriorating macroeconomy and the NBFC crisis to sell into this market? What is the bottom you are seeing for this market?

A) The topic of valuations is always debatable and subjective. While the benchmark has hit a record high, we believe that the broader markets are still far away from their respective highs.

Also, Nifty valuations should be seen in the context of big one-time losses seen from corporate banks and Tata Motors.

With a stable government at the center followed by a sharp fall in crude oil prices and benign interest rates, Indian macros are rather looking better.

Q) With Modi 2.0 the voice of midcap and smallcaps outperforming largecaps grew louder. Do you still feel that the broader market could outperform and if yes then why?

A) In the last 12 months, amidst election-related uncertainty, a sharp volatility in crude oil prices and others in the raw material basket, the valuations of mid and small caps have corrected sharply compared to largecaps.

Now, with the election uncertainty behind and cyclical recovery in sight, there is a relatively better probability of mid and smallcaps participating positively.

The broader markets should take cues from the monsoon and budget and if no negative surprise comes then post that they may start performing decisively.

Q) If somebody has to construct a portfolio now what would be your advice? Are there any sectors which are at risk amid global or domestic factors, and should investors limit their exposure?

A) We have divided markets into two buckets namely stable and cyclical. If we take BSE 200 as the universe, for FY19, the stable segment ex. financials have reported revenue, EBITDA and PAT growth (YoY) of 13 percent, 14 percent, and 10 percent respectively while including financial profit growth was 11 percent.

Cyclicals ex. financials, on the other hand, have reported revenue, EBITDA and PAT growth of 20 percent, 14 percent, and 8 percent respectively, while including financial profit growth was 19 percent.

Overall the BSE 200 profit pool is up 15 percent YoY which is highest in the last 6 years. So, we believe that a cyclical recovery led by corporate banks, cement and industrial should further gain momentum.

Risks are always there in the market be it known or unknown, but ultimately, for investors, the power of earnings leads to the joy of power of compounding over medium to long term. The key near-term risks are monsoon, fiscal policies in the Budget and global trade stability.

Q) If an investor in the age bracket of 30-40 years plans to invest Rs 10 lakh in markets via the mututal funds route. What would be your advice in terms of portfolio allocations?

A) Given the age bracket is young (30-40 years), a person should have a higher allocation to equities to the extent of 60-65 percent.

However, as per the rule of asset allocation, with equities price appreciation, whenever equity investments reach 75 percent and higher, a person should regularly book profits.

However, investors generally top-up higher-performing asset class (Equity) on  larger levels and eventually misallocate their asset allocation. So, it is always better to review entire investments every 12-18 months and keep booking profits from performing asset class.

Q) Auto sector has been on the sell list of both mutual funds and FIIs – do you think this sector could emerge as a dark horse in the next 12-24 months? What were the factors which contributed to the underperformance?

A) In India, the consumer demand can be driven either by inducement or by refreshment. In auto, demand saw deferment last year with no major refresh variants launched and also, there was no inducement to customers to purchase vehicles given the increased cost of acquisition due to technological upgradation and increased insurance related cost.

However, the auto sector has always demonstrated uptick with pent up demand coming back once uncertainty reverses.

If monsoon remains better and the government's reforms for reviving farm income fructifies, then the auto sector could see a revival in rural pockets whereas urban demand continues to remain healthy.

Q) What is your first take on March quarter results? Do you think green shoots of growth are visible in the March quarter? Which stocks according to you surprised and disappointed markets?

A) The biggest takeaway of March quarter results was a recovery in cyclical segment driven by cement, corporate banks, industrial, commodity and utilities.

While the stable segment saw some pressure amidst a slowdown in auto and consumer staples, other stable sectors such as consumer discretionary, retail banks and IT continued their momentum.

Q) The Indian market is up 10 percent in 2019 – do you think this momentum will continue amid rising concerns around NBFCs, global factors such as the trade war, and shrinking liquidity?

A) Opportunities are always there across market cycles. As long as we have  growth from earnings coming on our way sustainably and valuations are reasonable, we should continue to see the upward journey as the case has been.

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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First Published on Jun 16, 2019 08:26 am
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