DAILY VOICE: Utilities, power, gas transmission & OMC might be a contra play: Gaurav Misra

A) While the short-term direction of the market is uncertain, we are constructive in the long term outlook. We would suggest that investors should have a long-term investment horizon.

In the short-term, there will be volatility. The markets have recovered from the lows formed during the COVID-related drop of March and April.

From here on the pandemic trajectory, effectiveness of the global monetary and fiscal policies and geopolitics will have a bearing on short term market trends.

The nature and strength of the domestic economic recovery and corporate earnings will have an equal if not more of an impact as well.

Q) Equities look volatile and with rallies that have already run ahead of fundamentals – do you think investors’ will be better off going slightly overweight in the debt segment of the portfolio?

A) Investors should stick with their asset allocation plan. If the relative performance of different asset classes, till date, has led to relative weights deviating from the plan that should be adjusted back.

However, trying to time the market on a standalone basis with the core of one’s equity portfolio can lead to inferior outcomes and should not be attempted by most. This is because an investor will have to get both the exit and entry timing correctly.

Q) What is your call on IT and Banking stocks? Although we have seen some correction in both IT and Banks last week – is it a buy on dips or book profits?

A) Both sectors have a lot of relevance in the years ahead. However, within each sector there will be some businesses that will do better than others. The banking sector will contribute and participate in the economic activity ahead.

Within the sector, better-managed banks, with stronger competitive positioning(including on technology) will gain market share, grow profitably, and create shareholder value.

Valuations are lower than pre-COVID and investors should remain invested in select stocks in this sector or buy on dips. Indian IT industry has demonstrated its ability and relevance during the pandemic and in the global digital milieu.

Growth rates are expected to improve from the levels in recent years. Going forward, there will be some businesses that will do better than the industry and it makes sense to remain invested in such firms.

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) Strong well-run business models across industries such as pharmaceuticals/chemicals, consumer – staple and discretionary, IT, financials including insurance could be looked at in a correction.

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) There is a case to have stronger business models in terms of competitive positioning, offerings, leadership, ability to capture the addressable opportunity and growth. Some of the larger firms should clearly remain eligible.

However, there could be a few mid-sized firms as well which might not have all the abilities as the larger names but still be in a position to deliver strong growth. Thus a combination of select large-caps and mid-caps should be appropriate.

Q) Any big themes which you are pinning hopes on for the next two-three years?

A) The preponed and accelerated usage of digital and platform through new business models and through existing businesses across various sectors should create opportunities.

Maybe with some additional fiscal support, we can recoup the lost economic activity of the prior months and along with the recent reforms could get to higher sustainable growth in the years ahead.

My hope is that corporate earnings as a growth rate and as a percentage of GDP does pick up and move towards its average trend level of earlier years. That would also create additional opportunities.

Q) Any contra idea which you think could work, but is not yet discovered?

A) Every sector in the market is closely tracked and nothing is undiscovered. However, there remain pockets of deep value in utilities- power/gas transmission, oil and marketing companies, and select engineering firms.

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