"More than taking a top-down approach, the important aspect for retail investors is to maintain discipline and stay invested," said Shreyas Devalkar, Head of Equities at Axis Mutual Fund, in an interview with Moneycontrol.
According to him, one may remain cautious on export-oriented sectors, due to slowdown concerns. "Investment part of the economy and associated companies are expected to continue to show good growth."
Structurally, he believes India’s growth story will continue over the long term, and in addition, the earnings outlook, too, remains strong relative to many other markets in the region.
To that extent, India will remain a beneficiary of FII flows over the longer term, particularly after the uncertainty around elections wears off, says Shreyas with more than 22 years of experience in the financial services industry.
Q: Do you expect the market to rally ahead of the general elections in 2024?
We do expect pockets of consolidation to continue in the near term. Any fresh triggers in India and globally have the potential to drive markets. One can expect some amount of run-up ahead of the Union Budget 2024.
Furthermore, valuations have moderated from recent highs making mid and small caps somewhat attractive. Markers in the first half could likely be driven by election-related spending which should boost consumption demand. We expect investment growth to pick up post-elections.
Expectations of continuity of government can likely drive markets further. Apart from elections, stronger economic growth and an improving earnings outlook should bode well for equities over the next one year.
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Q: Are you increasing exposure to technology stocks?
The IT sector has seen muted growth, particularly in top IT/Tier 1 names. Continued rationalisation of discretionary programs, combined with extended timelines for the execution of existing ones, is leading to leakage of revenues and weak trends. We do have exposure to select tech stocks and remain cautious in our approach.
Q: Do you think the US Federal Reserve will not go for rate hikes henceforth, especially after reading latest economic data including inflation numbers?
We do believe that the rates have peaked globally including in the US and the interest rates could stay higher for longer. The Fed will continue to be data-dependent and in our view will stay on hold.
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Q: Do you expect the run to continue in midcap and smallcaps, though are looking overvalued now?
The midcap and smallcap segment indeed saw a sharp rally for most of this year. Consequently, the valuations of stocks were way higher than their pre-covid levels and at premium to large-cap companies. Mid and small-cap space has more representation of B2B companies having exposure to investment and exports part of the economy.
The underperformance of consumption compared to investment and export has helped the rally in the mid-small cap. With expectations of a global slowdown, one needs to be careful with the exports-oriented segment, though the investment part of the economy could continue to do well. In such a scenario, one may not extrapolate the past performance of these categories.
We do expect pockets of consolidation given the sharp run-up. However, I wouldn’t be surprised if against expectations the mid and small caps continue to advance.
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In such a scenario, rather than worrying about which segment would gain more than the others, investors should have exposure to all three segments. The large, mid and small-cap segments are complementary to each other than competing with each other.
Q: Sectors that are on your bullish radar...
More than taking a top-down approach, the important aspect for retail investors is to maintain discipline and stay invested. Markets have had a sharp run in the last few months and valuations currently seem stretched.
One may remain cautious about export-oriented sectors, due to slowdown concerns. The investment part of the economy and associated companies are expected to continue to good growth.
Stock selection will hold the key in these markets. Investors can use this period of consolidation to rebalance portfolios as we play longer-term themes.
Q: Do you think the market knows most of risks now? Do you see any risk factor that can spoil the market mood?
Most of the risks such as rising interest rates and the sharp run up in the markets are behind us. Geopolitical risks are always an uncertainty and can drive volatility in the markets. I think the key here is to stay focused on the right fundamentals and themes.
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India’s growth trajectory is on a firm footing and this will help drive growth over the longer term. The upcoming elections in 2024 could be a source of uncertainty for the markets. For investors, every volatility and dips in the markets are opportunities to stay invested or add to existing investments.
Q: Do you expect the FII flow to increase considerably in coming months?
Structurally, India’s growth story will continue over the long term and we remain on a stronger ground compared to other economies. In addition, the earnings outlook, too, remains strong relative to many other markets in the region.
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To that extent, India will remain a beneficiary of FII flows over the longer term, particularly after the uncertainty around elections wears off. Furthermore, apart from FII flows, we have been witnessing good inflows from DIIs and rapid mobilisation of household savings that limits volatility.
Disclaimer: The views and investment tips expressed by investment 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.
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