Naveen Kulkarni, Chief Investment Officer, Axis Securities, said that investors should rotate amongst sectors and allocate to sectors that are lesser impacted like IT, pharma, metals and rural themes, and sharp declines in quality BFSI should be used as an opportunity to accumulate.
Kulkarni has more than 15 years of experience in the financial services industry and specialises in fixed income markets, intermediation, origination and distribution. Before joining Axis Securities, he served as the co-head of research at PhillipCapital India Private Limited.
In an interview with Moneycontrol's Kshitij Anand, Kulkarni says small and midcaps will still continue to do well in 2021, as the impact on the economy will be manageable and we have seen cases of pent up demand impact the prices positively. Edited excerpts:
Q) Partial lockdown in various parts of the country, vaccine shortage, as well as increasing number of death, is likely to impact economic activity as well as corporate earnings. What is the kind of impact you see on markets? And, what should investors do?
A) Economic activity is getting impacted as per the Google mobility report and sectors which will be most significantly impacted have seen corrections like the BFSI, Autos, and consumer discretionary.
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Investors should rotate amongst sectors and allocate to sectors that are lesser impacted like IT, Pharma, Metals, and Rural themes. Also, sharp declines in quality BFSI should be used as an opportunity to accumulate.
Q) The government has opened vaccine has opened for all above 18 years. Do you this could turnaround sentiment on D-Street? Or stock-specific action will continue?
A) Vaccination will take time to have an effect. Also, vaccination does not mean that there is no COVID. However, as we progress and more people are vaccinated, the market will gain confidence and should start performing better. At this juncture, the market remains range-bound.
Q) Small & midcaps outperformed in the recent fall, but if the economy takes a hit, the excess in the broader market space might also go out. What is your view on the small & midcaps pace?
A) Small and Midcaps will still continue to do well in 2021. The impact on the economy will be manageable and we have seen cases of pent-up demand impact the prices positively. So, mid and small caps will continue to perform well in 2021.
Q) Pharma space is buzzing and most stocks have already outperformed even though the benchmark indices are trading flat to lower. How should one pick stocks in the pharma space?
A) Pharma is in a good space as it had underperformed from November to February and gained some traction from March onwards as defensive plays started gaining momentum.
Two themes are important, one is the vaccination and the second is the medication related to COVID. Companies like Dr Reddy or Gland Pharma are well placed. Also, large domestic plays like Cipla should do well over the next three months.
Q) Is the smart money moving towards Corona proof sectors? MFs increased allocation towards IT, Healthcare, Chemicals, and cement on an MoM basis in March while banks, Oil & Gas, utilities, and capital goods saw a decrease in allocation.
A) We have seen this theme playing out and will gain more traction in the next two months. However, correction in BFSI and others has already happened and further corrections will be buying opportunities in the sectors.
Q) FIIs turned net sellers so far in April after 6 months. Do you think with rupee weakening, rise in covid cases, lockdown – the pressure on D-Street may well continue?
A) FIIs have sold but it has not been significant. As the global situation improves, we are likely to see FII buying in the Indian equity markets over the next few months. So, the selling pressure from FIIs is likely to abate.
Q) Robinhood investing picked up in 2020 – do you think this is just a short-term phenomenon and DIY approach will not last long as new investors may well fail to generate alpha as markets turn choppy?
A) DIY will continue as many new investors join the equity markets. It might be challenging for many to generate alpha but markets do offer good opportunities to make returns.
In an up-trending market, there are enough success stories for the investors to be enthused about. So this will continue.
Q) View on metals, commodity-linked stocks in 2021?
A) The rally in metals and commodities is strong and seems very likely to continue over the next few months. So, commodity stocks will continue to perform strongly.
Q) How did your PMS perform in FY21. What was your strategy to beat the COVID stress?
A) Our PMS strategies have outperformed the market. Our biggest beat has been in the contra strategy which was helped by outperformance in cyclical stocks and value plays.
Now, mid and small caps have started outperforming and we can expect this trend to continue. So, buying growth at a reasonable price that combines both growth and value themes will perform very well in FY22.
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