"We are in a multi-year bull market but the recent rally has stretched the valuations," Sahil Kapoor, Head – Products & Market Strategist at DSP MF, says in an interview to Moneycontrol. Nifty is now trading over 22.5 times trailing earnings.
At this stage, it could be better to stagger fresh equity purchase and look for corrections to add equity exposure, he advised.
On a valuations basis, smallcaps are relatively better placed, not just in India but also globally, says Sahil Kapoor with over 14 years of experience across asset classes and businesses.
With a focus on not overpaying and a respect for valuations, small and midcap have attractive opportunities for the next few years, he believes.
Q: Do you think all the negatives will get priced in by the technology space in current quarter? Do you see buying opportunity in the space in the last quarter of 2023?
Western economies like US and EU have shown resilience. The services sector particularly has avoided a sharp downturn for now. But there are visible signs that the services sector in the US and other geographies would see a gradual slowdown.
Indian IT firms, which reported their financial results recently, have also been cautious on their outlook for this financial year. In addition, the rally in IT index has once again brought these firms to over 1 standard deviation away from their long term valuations.
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Hence, it is still a time to wait and watch for this sector. In case of price correction, this sector may show some long term opportunities in next few quarters.
Q: Your take on the FMCG space where most of the analysts expect margin improvement post fall in commodity prices but some concerns over volume growth?
Domestic economy has seen a mixed recovery. The rural consumption recovery is gradually underway and there are signs that this could strengthen if the monsoon and sowing season progresses well. Decline in commodity prices has helped commodity users like FMCG companies to improve their margins.
One has to be very selective and driven by company trends to ascertain investment opportunities in the sector. Selected companies may offer tactical opportunities in this space as profitability improves over the next few quarters.
Q: Do you think domestic-focused midcap and smallcap companies' earnings will remain strong in the coming quarters?
Small and midcap stocks have seen a strong rally and earnings trends have also begun to improve. The financial health of smaller firms had been a major concern after the covid disruption. There is a gradual improvement in balance sheet of these companies.
On a valuations basis, smallcaps are relatively better placed, not just in India but also globally. With a focus on not overpaying and a respect for valuations, small and midcap have attractive opportunities for the next few years.
Q: Do you expect flow of IPOs to be large in the rest of calendar year?
There are a number of IPOs slated for this year. With better fund flows from institution investors in the secondary market, IPO activity may garner interest. However, one has to be entirely focussed on business analysis while evaluating IPOs.
Q: Do you see food inflation concerns in India but a relief in core inflation?
Food inflation appears to be seasonal in nature. The base effect and some disruption caused in tomatoes and other perishable items can drive food inflation upwards by 200bps and headline CPI by 100bps in the next months inflation data. But these trends are likely to subside as new crop and horticulture produce hits the market in mid-August.
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Moreover, core inflation continues to remain in a disinflationary phase. Hence, inflation is expected to be a lesser of a worry for the next few months.
Q: Do you expect growth slowdown in India in the second half of the financial year? As a result, do you see the RBI cutting growth forecast in later part of the financial year?
As of now all high frequency indicators like PMIs, tax growth, credit growth, fast tag generation, e-way bills and automobile sales continue to remain steady and are not pointing towards a slowdown. RBI’s policy is likely to be influenced more by inflation expectations, global monetary policy and supply of government paper.
Rate cuts can wait for now. RBI is likely to wait for US Fed to indicate a conclusive end to its rate hike cycle before RBI begins its rate cutting cycle.
Q: Are we done with the equity market rally?
We are in a multi-year bull market but the recent rally has stretched the valuations. Nifty is now trading over 22.5 times trailing earnings. At this stage, it could be better to stagger fresh equity purchase and look for corrections to add equity exposure.
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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