"We believe going forward the market may show a little pullback but we will witness further correction as dollar index is at 104 and expected to rise further, dollar-rupee is trading at all-time highs, and FII (foreign institutional investor) selling will continue till valuation in Indian markets becomes reasonable," Mohit Nigam, Head - PMS at Hem Securities, said in an interview to Moneycontrol.
Hence investors should be cautious before making fresh positions, he advised.
On the LIC listing, he said with heightened volatility and current ongoing correction in the market, investors may witness a flat to slightly negative opening versus the upper end of the issue price band. But since retail investors and policyholders got discount in this IPO, these investors may see marginal gains over their investment on the listing day, he added.
Edited excerpts of an interview as LIC looks all set to debut on BSE and NSE on May 17.
Do think the worst related to inflation concerns and policy tightening is behind us considering the significant fall of over 12 percent from April highs?
Indian markets have corrected more than 12 percent from April high triggered by sudden rate hike by the Reserve Bank of India (RBI) to mitigate fears of rising inflation. But going forward inflation continues to be a major headwind for markets and to offset its impact, both the US Fed as well as RBI will continue to hike interest rate aggressively and this will trigger recession in 2023.
We believe going forward the market may show a little pullback but we will witness further correction as the dollar index is at 104 and expected to rise further, dollar-rupee is trading at all-time highs, and FII selling will continue till valuation in Indian markets becomes reasonable.
So we believe investors should be cautious before making fresh positions.
What are the pockets that one can bet on now as there has been a sharp fall in every sector?
Despite the sharp fall, things appear to be a little frothy. The market is in the phase of adjustment and recovery which may take some time after which it will continue its uptick.
Investors can focus on sectors like banking, IT, infrastructure and defence. In banking, multiple things are happening, one is the current values of companies in this sector appear appealing when compared to their historical average. Banks are projected to show significant credit growth, as well as improvements in collection efficiency and decreased slippages.
In India, government initiative will give a push to the electric vehicle (EV) sector. India's EV market is expected to grow at a compound annual rate of 90 percent in this decade to touch $150 billion by 2030. In terms of penetration, EV sales accounted for barely 1.3 percent of total vehicle sales in India during 2020-21. However, the market is growing rapidly and is expected to be worth more.
The Indian defence market is on the cusp of revolution, with the introduction of government policies like Aatmanirbhar Bharat, Make in India and introduction of private players to speed up defence production and increase export five times. India aims to increase production output to $25 billion in coming years which makes defence an attractive sector in park investor's funds and new age IT sector continues to be a strong and growing segment.
Economics, jobs and personal lives are becoming more automated which becomes a direct growth factor for the technology industry in the coming years.
Market conditions seem to have dampened sentiment in the IPO market. The grey market turned into discount for most IPOs. Will it get delayed IPOs that are planning to come up in coming weeks?
The latest beatdown in the secondary market is hurting sentiments for primary markets, which ultimately results in IPO companies to list at a discounted price.
Inflationary worries and surprise rate hike dampened sentiments for primary issue and premia has dropped lower. It appears that the market may not see more IPOs soon until the sentiment revives.
What could be the listing price for LIC on May 17 and what should investors do with allotted shares? Should one buy LIC on listing day?
With heightened volatility and current ongoing correction in the market, investors may witness a flat to slightly negative opening compared to the upper end of the issue price band. But since retail investors and policyholders got a discount in this IPO, these investors may see marginal gains over their investment on the listing day. We believe investors should hold the stock for long term and buy it in dips (around Rs 800-850).
With the current fall, is it time to bet on banking and financial space?
The banking sector has underperformed the benchmark index due to concerns about asset quality and weak lending growth exacerbated by pandemic-related disruptions. The current values of companies in this sector appear appealing when compared to their historical average, and investors should be careful and take advantage of any drops in fundamentally strong banking stocks. Banks are projected to show significant credit growth, as well as improvements in collection efficiency and decreased slippages. Large caps are better equipped and better located in terms of transmitting systemic rate fluctuations.
Do you expect significant earnings downgrade for FY23?
We expect FY23 earnings to get marginally affected owing to a rise in crude oil and input cost. Longer than expected lockdown in China has hampered the global supply chain. If the situation persists we might have to lower our earnings expectations at least for the first quarter of FY23. The result of the ongoing war between Russia and Ukraine will also play a key role in earnings forecast for Indian companies. Any reduction in commodity prices especially crude oil will favourably impact earnings. Overall we believe earnings to remain stable for FY23.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.