Daily Voice | Investors should develop skill in shortlisting, evaluating stocks, says Dhiraj Relli of HDFC Securities

While there is no doubt that the valuation of the Indian markets had reached high levels on October 19, they have corrected about 5.5 percent from the highs. Based on historical valuation parameters, the Indian markets have reached the high end of the band of valuations. However, one will have to consider the monetary stimulus and the low interest rates prevailing in the world till about a few weeks back.

Also, the alternative sources of investment did not yield attractive returns. Work from home resulted in a big flock of millennials starting to trade in equities. Rising allocation out of financial savings to equities in India also led to this kind of rise in indices. This shows the potential of even higher allocation by Indians to equities as an asset class and its impact on valuations in future.

Having said that there are excesses in some pockets of the markets. Hence, depending on the flows from FPIs, some more correction can happen in our markets in the near term, though this could throw up opportunities to add in select stocks.

What trend do you see at the FII desk in terms of sectors churning, especially after a stellar run in the market?

FPIs have been net sellers lately cutting their equity holdings globally as well as in emerging markets in the face of withdrawal of monetary stimulus, rising interest rates and the approaching calendar year-end. They have been churning their portfolio in the Indian markets too. They have been buyers in auto, banks, oil and gas, capital goods, telecom and power, while being sellers in cement, software and media.

Do you think the SIP (systematic investment plan) flow on a monthly basis will increase significantly in the coming years?

Mutual Fund SIP flows have been rising quite well as new investors enter the markets and old ones become more convinced with the virtues of SIP. From recent experiences, most investors have realised that SIP is a disciplined way to save and create wealth over the medium-to-long term. Having attracted Rs 10,351 crore by way of SIP in September 2021, aided by record high new SIP registrations of 2.68 million, I have little doubt that this number can grow to Rs 20,000 crore per month in the next four years.

What are the risk factors that can spoil the current market trend?

The risk factors facing the equity markets now include commodity price inflation, supply chain issues, reversal of monetary stimulus, increase in interest rates across the globe, large, continued reversal of FPI flows, possible damage to the asset quality of lenders, slow job creation due to a shift from unorganised to organised. Some of these are visible.

The primary market is flooded with IPOs. Do you think this will continue in the coming quarters or it will slow down after the LIC issue?

IPOs have lined up basis the response to the earlier IPOs and the listing gains in most of the earlier IPOs. The appetite of investors has increased even for companies that have not made any profit so far or are not likely to make any profit in the near term. The valuation parameters have undergone big changes over the past few quarters partly aided by the valuations given to IPOs in the US. Going forward, as long as IPOs offer listing premium and enough upside for leveraged applications, they will keep coming up, before or after the LIC IPO.

What themes would you suggest for the portfolio in the coming years?

Capex beneficiaries, export-oriented companies, internet-enabled businesses that are leaders already and can show linear growth in top and bottomline, PSU stocks, efficient manufacturers, PLI scheme adopters and emerging Smallcap companies could be under focus.

What is your investment mantra that you would like to share with investors on this Diwali?

As data and analysis is available more freely on economy, sectors and stocks, investors should develop skills in shortlisting stocks and evaluating them, rather than depending on hearsay, tips or media. In case they do not have the time or inclination to develop this skill, they should go through mutual funds or trusted brokers’ recommendations so that they do not commit mistakes of picking the wrong stocks at the wrong time and getting saddled with them when the tide turns. They also need to follow money management rules.

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