Piyush Nagda, Head - Investment Products at Prabhudas Lilladher, said Indian market cap touching the $3 trillion mark is a milestone, consolidating the position of the Indian economy as an important and attractive market among global peers.
Nagda has more than 20 years of experience in the financial service industry. Previously, he has worked with Motilal Oswal, JM Financial, and Axis Securities in senior management roles driving Pan-India businesses across investment products.
In an interview with Moneycontrol's Kshitij Anand, Nagda said that the valuation of many good quality mid & smallcap companies is still attractive, but there is a long tail of penny stocks without good fundamentals and investors should be cautious about it. Edited Excerpts:
Q) Indian market cap touched $3 trillion this week. Does the rally make you cautious or bullish at current levels?
A) Indian market cap touching the $3 trillion mark is a milestone, consolidating the position of the Indian economy as an important and attractive market among global peers.
The rally is more broad-based which is also positive. In the 2020 rally, the top 5 stocks contributed almost 80% but in 2021 (Jan to April) top 5 stocks' contribution came down to around 57%.
There is a lot of action in the mid & small cap segment. Valuation of many good quality mid & small cap companies is still attractive, but there is a long tail of penny stocks without good fundamentals and investors should be cautious about it.
Q) Benchmark indices are just shy from hitting record highs while small & midcaps have already touched their highs last week. The economic fundamentals are hinting at the pain, and there are geopolitical tensions. What should investors do – enter at highs or wait for a dip?
A) The 2nd wave of COVID has hit us hard! After knee-jerk reaction markets have discounted all negative news and are near an all-time high due to robust Corporate earnings, reduction in new cases, ongoing vaccination drive, accommodative financial environment and expectation of faster revival.
Waiting for market dips has an opportunity cost and investors could miss out on the growth if they keep waiting for a market fall.
‘Time in the market’ i.e. staying invested, is more important than ‘timing the market’ i.e keep searching for highs and lows. Few extra years of investments can have a multiplier effect on wealth creation if you remain invested.
Investors sitting on the fence should start investing by allocating capital towards equities as per their risk appetite and with at least a 3-5 year time horizon.
Q) Amid lockdown in April-May – how are June quarter earnings likely to pan out?
A) Regional lockdowns were not as intense as it was last year. The impact on earnings for a majority of sectors is likely to be limited.The Auto sector and discretionary spending are more impacted. Demand has got deferred and if COVID gets contained, a lot of it should come back in the 2nd and 3rd quarters.
Q) After a volatile May where do you see markets headed in June? Which are the key levels to watch, and any important events that could influence the trajectory of the market?
A) Indian markets have consolidated well and globally there is a rebound in growth. This will help markets to remain in positive territory as Indian growth cycles have historically been synchronized with global cycles.
RBI’s next MPC meeting slated for the first week of June to decide interest rates will be a key domestic event to watch out for.
We feel interest rates have bottomed out and the RBI will maintain the status-quo by keeping rates unchanged. On the global front, the situation should not escalate in the Israel-Palestine belt.
Q) Retail investors flocked to equity markets last year or the first wave. The second wave is unlikely to see the same enthusiasm. It will grow but probably not with the same momentum. Do you see any correction that can lead to investors booking out from D-St?
A) It is true that the first wave brought many new investors to the market and a continuous rally just accelerated the momentum.
Corrections affect sentiments but will have limited effect. Collective efforts of the SEBI, AMFI and all market intermediaries in spreading investment education are helping transform investor behaviour to embrace long-term investing.
Increasing awareness about inflation-beating returns is helping investors understand the importance of equity as a wealth-creating asset.
In a low-interest-rate scenario, where less than 4 percent of the Indian population participates in equity markets vs. double-digit in comparable economies -- the trend of retail investor growth in markets will in fact pick up again.
Q) Which key sectors could play a crucial role in the unlock trade and why given that daily infections have come down and could probably peak out towards May end or June?
A) BFSI, IT, Pharma & Healthcare, Speciality Chemicals, Consumer staples and select discretionary stocks continue to offer good opportunities on the back of cost optimization and expected revival, hence our focus is more broad-based than merely unlock trades.
Q) What has been your strategy in dealing with COVID-led volatility? Help us giving any instance or example?
A) COVID-led volatility came with a lot of uncertainties as well as opportunities. Post the lockdown, we spotted a great opportunity in Software as a Service (SaaS) based stocks and strongly suggested our clients to diversify some portion of equity allocation to U.S stocks through our international platform. The strategy has delivered good returns so far and investors are happy.
Individual stock picking becomes really difficult in such uncertain and extremely volatile times, so our second strategy revolved around index funds. Allocation to index funds has helped clients to achieve good growth while managing volatility at a low cost.
In addition, we did a series of investor education and skilling webinars for Client engagement and employee/partner up-skilling on topics like the Importance of Health & Life insurance, Having Emergency Funds, International investing, Passive Investing Strategies etc. This helped in knowledge and confidence building, as well as better team alignment.
Q) What are your views on international diversifications say towards US equities or ETF. For first time investors which would make more sense?
A) International investing helps in geographical diversification and tapping into unique and fast-growing opportunities. US Equity markets enjoy almost 50 percent share of the entire world’s market capitalization and US companies dominate the Global Equities landscape.
Investors can invest in top global brands like Apple, Microsoft, Amazon, Google, Facebook, Netflix and many more.
First-time investors or anyone who finds stock-picking daunting can look at ETFs like iShare, SPDR, Vanguard which are linked to leading indices like S&P 500, Nasdaq, Rusell 1000.
Passive index-based investing forms almost 50% in US as generating alpha in a highly matured market like the US through active investing could be tough.
Apart from geographical diversification, investors can benefit through dollar hedge against Rupee depreciation and fractional investing in US equities (Fractional investing means investor can buy less than 1 share, unlike Indian market where minimum quantity has to be 1 share. This helps in owning high price shares like Berkshire Hathaway or Amazon).
RBI’s liberal remittance scheme (LRS) allows Indian investors to invest upto $2,50,000 per financial year.
Q) Bitcoin bagged maximum headlines last week after the crypto currency plunged over 30%. What are your personal views -- investment asset or speculative asset class?
A) Extreme volatility in Bitcoin and other cryptocurrencies is preventing its mass adoption as an alternate global payment system, as was originally envisaged.
Blockchain technology has tremendous potential and applications like Decentralized Finance (Defi) can help in harnessing the true potential of this revolutionary concept.
But currently, with issues around mining-related climate concerns, extreme volatility, scalability and regulatory cross-fire, Crypto’s have become a subject of speculation.Having said that, crypto space is evolving and time will only tell its real impact on the financial world and society at large. Currently it’s highly risky and investors who want to enjoy the ride should be ready for huge swings on either side.
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