The market can correct 10% at any moment of time, more so when the market is pricing in a recovery. So, if it falls go and buy the stocks you found attractive on fundamentals
Practically, if the market and economy move in sync then what’s the use of money managers and analysts’. Frankly, I don’t think anyone knows what is the right PE for the market. I do know before COVID we were slowing down and during the first few months of COVID, it was a total breakdown, he said in an interview with Moneycontrol’s Kshitij Anand.
Q) What is your outlook on markets for the near term? We have seen Nifty breaking a 10-day winning streak last week, and then gaining momentum, and again we are testing 11900. Which are the factors that are weighing on markets?
A) These swings are normal in the market; however, I would not hazard a guess on the next 5 percent move whether it will be up or down, though the general direction of the market will be up.
It is simple to say what’s working for the market or weighing on the market – this is liquidity or the lack of it. Can the tap go dry?? Unlikely; however, the flow can always slow down which will be bad for the market
Q) Equities look volatile and with a rally that has already running ahead of fundamentals – do you think investors’ will be better off going slightly overweight in the debt segment of the portfolio?
A) While I don’t want to sound dismissive of this argument, please remember liquidity creates its own fundamentals. I don’t know how people perceive that market is running ahead of fundamentals?
Practically, if the market and economy move in sync then what’s the use of money managers and analysts’.
Frankly, I don’t think anyone knows what is the right PE for the market. I do know before COVID we were slowing down and during the first few months of COVID, it was a total breakdown.
Having said that, the recovery has surprised us all. Good Monsoon and incremental pumping of US$14 bn (compared to FY20) has created a positive tailwind in the rural and tier-II cities in India.Indian economy will bounce back smartly from this shock in FY21 and the market will price that in. I advise investors to buy good earnings growth stories and forget about market levels.
Q) We are trading at the upper end of the valuation curve which could result in a technical adjustment in markets – which sectors or stocks are good buy on dips fit the bill?
A) Market can correct 10% at any moment of time, more so when the market is pricing in a recovery. So, if it falls go and buy the stocks you found attractive on fundamentals.
Q) How do you rate the three IT stocks from your top favourite to least favourite and why? Infosys, TCS, Wipro, and HCL Technologies. Does it make sense to stick with largecap IT stocks or one should move to Mid-cap IT?
A) Within large caps we prefer Infosys and HCL Technologies. With regards to Infosys, most of the company-specific issues are behind and company’s sales growth is now industry-leading on a consistent basis with margins also stabilising/improving.
Regarding HCL Technologies we believe that it is beneficial of an increasing trend of cloud migration by clients and product business is helping to defend margins and improve FCF.
In our view, Wipro’s notable strategy change under the leadership of the new CEO is the simplification of the operating environment by reducing the P/L responsibilities of certain operating units to fasten the decision-making with sheer focus on client relevance.
This can change Wipro’s operating culture and if executed well (as the same can result in transition-related issues) can help achieve the required goals of improving sales growth.
We believe with TCS, the worst of the demand-related issue is behind with improving order book, however, the recent rally in the stock seems to factor this. In the digital world, we believe that both large caps and midcaps will be beneficial for improving digital adoption by the clients. However, given the rally in the many midcap IT stocks once needs to selective at current valuations.
Q) Any big themes which you are pinning hopes on for the next 2-3 years?
A) Defence and manufacturing sector stocks will surprise people
Q) Any contra idea which you think could work, but is not yet discovered?
A) Banks – Recovery is in play growth needs credit. Banks will do well as will infrastructure.
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