Amit Jain, who co-founded Ashika Global Family Office Services says he will not touch the metal sector now, even if it goes up in the short term.
This sector has very long business cycles, like the real estate sector. Hence, he believes that this sector may go into long consolidation before the next meaningful move.
At this moment in time, smallcaps and microcaps look overly heated in terms of their current valuations compared to their potential for growth, says Amit who has served the Indian Banking & Financial Services Industry for eighteen years.
"Whenever, in the past, we have seen such a dichotomy in the Nifty50 valuation compared to the Nifty Micro Cap 250 valuation, it has always been followed by a price correction and a time correction in the microcap stock space," he says.
Q: Do you expect the flow of IPOs to be strong in coming months as in one of recent interview you said if Nifty holds 18,000 for three months, then the primary market will see more IPOs hitting Dalal Street?
Yes, I still stand by my statement, as I see more and more IPOs going forward in Indian markets. In the last year, we have seen more than 40 IPOs hit the Indian markets successfully, which shows the robustness of Indian capital markets. Also, recently, the total market capitalization of the Indian stock market touched a new high of Rs 330 lakh crore, which is by far the highest in the history of Indian capital markets.
In my view, this momentum in the Indian stock market will continue as we witness huge inflows in the Indian mutual fund industry through monthly systematic investment plans, which are closer to Rs 1,5000 crore every month.
Q: Do you think midcap and smallcap will continue outperform largecap, or do you expect short term correction in broader space given the significant run-up in current financial year?
At this moment in time, smallcaps and microcaps look overly heated in terms of their current valuations compared to their potential for growth. As of now, Nifty Micro Cap 250 is trading at a PE of 33, compared to a Nifty 50 PE of 22 and a Nifty500 PE of 25. On the face of it, it looks like the risk-reward ratio in most of the microcap stocks may not be favourable.
Also read: Swiggy, PayU hold I-banker pitches and gear up for mega 2024 IPOs
Hence, any investor who is looking for short-term gains by investing in these microcaps may lose their capital unless he has a very strong conviction about the business model of the company. Whenever, in the past, we have seen such a dichotomy in the Nifty50 valuation compared to the Nifty Micro Cap 250 valuation, it has always been followed by a price correction and a time correction in the microcap stock space.
Q: Your take on expected US inflation.... Do you expect pause in Fed funds rate in September policy meeting?
I was very hopeful of a rate pause by the US Fed until the middle of last month, as US inflation has come down to 3.2 percent during its July prints. But in the last month, crude and other commodities have again been on the boil, which may pose a serious threat to the global economy going forward.
Also, the dollar index is trading close to 105, which may not be giving comfort to the global markets. At this moment in time, I believe we may have one more round of rate hikes by the US Fed by 25 basis points in their September policy. However, this possible rate hike by the US Fed is already factored in by the US bond market at current levels.
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Q: One sector that you want to avoid for rest of calendar year..
As mentioned in my last interview, I have been very bullish on the banks, and that call has played out very well for our investors as Bank Nifty is very close to its lifetime high.
One sector that I will not touch, even if it goes up in the short term, is the Metal Sector. This sector has very long business cycles, like the real estate sector. Hence, I believe that this sector may go into long consolidation before the next meaningful move. However, I may change my view on this sector once we have a clear picture of China's slowdown and the outcome of the Russia-Ukraine war.
Also read: Nifty at 20k: A part of a long journey and not a destination, says Vijay Kedia
Q: Which pockets are looking attractive for investment now, with a one year perspective?
Like in my last interview, I continue to be bullish in banks, especially in PSU banks and some small private banks. As of now, only this sector looks fairly valued, with potential for 15 to 20 percent upside. Also, this sector has a very favourable risk-reward ratio for conservative investors. In addition to this, I'm bullish on the FMCG sector as well, from a medium to long-term perspective.
Q: Considering the rally in all caps, is it the time to take major profit off the table and sit on cash?
Since April 2023, quality midcap and smallcap stocks have given a return of anywhere between 20 percent and 50 percent in the last 8 months. Any investor who would have invested in April 2023 must be sitting on huge profits by now.
Hence, it is prudent to book a partial profit in the portfolio and reallocate that profit into quality banks and large-cap stocks. This reallocation will ensure that your profits earned in mid-caps are protected with the safety of large-caps and consistent growth from hereon.
Q: What do you expect in the special parliament session scheduled between September 18-22? Is it one of reasons for the market rally?
In my view, the market rally is more driven by domestic liquidity than the upcoming special parliament session. On average, every month, domestic investors are pumping Rs 20,000 crore to Rs 25,000 crore into the market, which is driving the unprecedented rally in small- and mid-cap stocks.
In my view, the upcoming special session in parliament will be more focused on political agendas than any market reforms. Hence, it will be a neutral event for the markets.
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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