Harsha Upadhyaya, President & Chief Investment Officer - Equity, Kotak Mahindra Asset Management Company, said that if one is wary of valuations, dynamic asset allocation products can be chosen as equity allocation in these products will move depending on valuations.
Upadhyaya is currently managing assets worth Rs 46,000 crore. He has over two decades of experience spread across equity research and fund management. He has previously worked with DSP BlackRock, UTI Asset Management, Reliance Group, and SG Asia Securities.
In an interview with Moneycontrol's Kshitij Anand, Upadhyaya said that the cyclical baskets comprising banks, industrials, cement and metals may witness higher earnings growth as compared to the rest of the market once economic activities normalise.
Edited excerpts:
Q) The Nifty50 hit a fresh record high above 15,700 in June. What is your outlook on markets for 2021?
The market has gained strength on expectations of economic recovery post containment of COVID cases in the second wave and ongoing vaccination drive.
Market movement for the rest of the year is likely to be driven by the progress on these same factors. However, the valuations have remained at higher levels compared to the historical range and could result in higher volatility if there is any unforeseen negative development.
Q) Market is focusing on the unlock trade. But, will the scenario pan out exactly similar to what we saw last time considering that was a total lockdown and we are in partial lockdown?
The jury is still out on whether the demand scenario will follow post first COVID wave template. No doubt that there is quite a bit of pent-up demand across sectors, given that we have witnessed disruptions in the last 18 months or so.
However, this time around, the COVID situation has been emotionally draining for a larger proportion of the population as compared to that during the first wave.
To that extent, in our opinion, the demand recovery in discretionary segments could be slower to pick up this time around. However, from a medium-term perspective, we expect a strong recovery in those segments too.
Q) What should be the ideal strategy now – should one book profits and then deploy cash at lower levels?
Timing the markets is never easy. The year 2020 was a good example. We would rather advise disciplined and regular investments with a long-term focus.
If one is wary of valuations, dynamic asset allocation products can be chosen as equity allocation in these products will move depending on valuations.
Q) Which sectors likely to lead the next rally on D-Street? Time for sectoral rotation and look at sectors which remained underperformers?
Defensive sectors such as IT, FMCG, and Pharma are expected to deliver steady earnings growth. The valuations in this basket have been high relative to the market as well as history, with limited possibilities for any earnings surprises.
On the other hand, the cyclical basket comprising Banks, Industrials, Cement, and Metals may witness higher earnings growth as compared to the rest of the market once economic activities normalise.
The valuations here can get rerated, if there are positive surprises. Therefore, our preference is to have cyclical tilt in the portfolio.
Q) Which are the key risks which Indian market faces in the year 2021?
Some of the risks could be – slower-than-expected recovery or further disruption in the economy due to COVID scenario, higher valuations, and commodity inflation eating into corporate profits.
Q) With markets at record highs have you increased or reduced your cash position compared to last month?
At Kotak MF, we do not take active cash calls and rather remain fully invested generally. Our cash positions across funds have been largely unchanged as compared to that in the previous month.
Q) Companies or stocks which stood out in the March quarter earning seasons according to you?
Overall, the Jan – Mar 2021 quarter has panned out much better than street expectations. The Nifty basket of companies that have announced results so far has delivered 93.3 percent and 13.3 percent earnings growth on a YoY and QoQ basis, respectively. It has been an all-round growth with most sectors participating.
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