Devang Mehta, Head–Equity Advisory at Centrum Wealth is of the view that earnings growth has picked up in the last two quarters, and the momentum is expected to continue (except for Q1 FY22) – which suggests that good times can get better over the next couple of years.
Devang is a market veteran & has more than two decades of experience in the fields of Investment Advisory, Equity Sales & Portfolio Management. He was previously associated with BNP Paribas, Anand Rathi Financial services & Angel Broking.
In an interview with Moneycontrol's Kshitij Anand, Mehta said one must concentrate to create a portfolio of companies where they do not have to sacrifice a good night's sleep & keep getting stress-adjusted returns. Edited excerpts:
Q) Both Sensex and Nifty50 hit a fresh record high. Where do you see markets in 2021?
A) Both indices along with the broader markets have been on a strong footing almost all through the last year. Of late, the rally has been broad-based in terms of market capitalization, and even sector participation.
Earnings growth has picked up in the last two quarters, and the momentum is expected to continue (except for Q1’FY22) – which suggests that good times can get better over the next couple of years.
In addition, the participation in terms of FII flows seems to have picked up in June, after a couple of months of outflows. The SIP figures for mutual funds and the overall appetite for equity investing in India instils confidence.
Nevertheless, after such a phase of resilience, and periods of high returns, one should be prepared to digest intermittent ebbs & corrections, which are an integral part of any bull market.Q) Things investors should avoid doing when markets trade at a record high?
A) These are the things that one must avoid doing in a bull market:
1) Stop following & chasing indices on a daily basis.
2) Start worrying when moneymaking becomes easy. In addition, there will always be that left-out feeling in a raging bull market where everything & anything will give phenomenal returns.
3) Avoid comparing your returns with your friends & neighbours. People hardly talk about losses & mistakes.
4) The classic definition of a bull market in the shorter term is, even your mistake pays off. However, these mistakes prove costly in the longer run.
5) It’s important to maintain hygiene in the portfolio & discipline in behaviour for the overall financial well-being.
6) Also, just because indices are at a lifetime high, do not lose focus. Markets can go up from here & stay at elevated levels for longer periods.
7) One must rather concentrate to create a portfolio of companies where you do not have to sacrifice a good night's sleep & keep getting stress-adjusted returns. Take professional advice to realign & restructure the portfolio, if need be.
Q) With markets trading at record highs, what should be the strategy of investors?
A) At the expense of sounding cliché, the best strategy to adopt is buying/accumulating on dips, and deploying money gradually/in tranches.
This will eventually help you to tide over volatility & help build a portfolio bought at good valuations and price points.
With a longer-term positive view on earnings growth in place, we continue to sight any meaningful volatility in the near term as opportunities to buy and increase exposure in equities.
Some sectors & businesses seem to be getting into a trajectory of fast growth as well as a sustainable future for at least the next half a decade. Here, the approach has to be a little more aggressive in buying.
Corrections here can be short-lived. Time spent with these businesses will be more appropriate than timing them.
Q) Inflows into MFs for the third month is a positive sign for Indian markets which suggests that there is a new line of defence. What are your views?
A) The foreign investors selling always does create some short-term panic, but the wider participation of MFs, Insurance companies, ETFs & even direct equity investing will partially neutralize the impact.
Yes, DII’s are now equipped with decent ammunition to provide a cushion in tough times, when FII’s sell or the flows recede.
This has been an evolution & revolution, where Indian investors are willing to invest for longer-term in mutual funds as well as direct equities.
The increase in penetration is a positive sign of inclusive growth, and over a longer period will increase the depth of our markets.
It is heartening to see the new breed of investors wanting to own a pie of India’s great businesses and are willing to wait patiently for generating compounding returns rather than giving in the temptation of a short-term adrenaline rush.
Q) What are the factors fuelling the rally on D-Street?
A) One of the most important, and relevant factors right now is the decreasing number of COVID cases across India, and the gradual unlocking which will again spur demand, and get businesses on track for robust growth.
Markets have ignored the short-term impact of a couple of months of lockdown & looked beyond this quarter.
The fuel has been coming from an excellent set of earnings reported by India Inc., and that too across a diverse range of sectors & Industries.
With operational efficiencies being the keyword across companies (debt reduction, cost-cutting, productivity improvement, technology usage), the earnings growth momentum can be sustained.
Corporate profits to GDP are at a 4-year high of 2.6% - supported by expectations of strong growth in corporate profits at 20%+ CAGR over the next couple of years, this ratio is expected to converge towards or even exceed the long-term average of 4.4%.
Also, in absence of an attractive asset class, lower interest rates, equities will keep attracting investors, globally & locally
Q) Which sectors will lead the next leg of the rally on D-Street?
A) We have been advocating a balanced portfolio where the three pillars, namely, size of the opportunity, market share of the business & margin of safety are visible in the foreseeable future.
Hence, it is imperative to buy market leaders across industries & market cap.
In financials, we prefer to buy large private banks along with some quality NBFCs & Insurance companies, which have been gaining market share in a difficult environment.
Building materials has been the mainstay in our portfolios with businesses from across industries like Paints, Electrical Goods, Adhesives, Ceramics & cement.
IT & allied businesses plus niche pharma companies along with diagnostic laboratories, specialty & agro chem, select capital goods, discretionary & non-discretionary consumption also qualify with all growth levers in place.
All these sectors & themes together will be proxies to play both the exports as well as the economic recovery story.
Q) Which sector/stocks will fall in the category of disruptors?
A) Some companies in the IT & allied industries apart from the evolution of electric vehicles have the capability to be branded as new-age disruptors.
Also, in the post-COVID era, a number of businesses needed productivity enhancement & hence Automation as a theme has emerged very strongly.
Fintech companies that are close to listing can also ideally expect good investor interest.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.