The retail flows have started moving towards midcap and small-cap names. In fact, the small-cap index has recovered 88 percent from 52-week low and is trading just 6 percent away from its 52-week high, Hemang Jani, Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) US Fed plans to keep interest rates low for a long time. What is the kind of impact it will have on emerging markets like India as well as the currency?
A) As per the recent commentary from the US Fed, it seems that interest rates will remain low for an extended period of time. We have seen good inflows from FIIs in the last couple of months (India – net inflow was 6.5bn US$ in Aug).
Additionally, low-interest rate bodes well for equity markets and asset prices. The USD is also hovering around 73 odd levels for some time now (down from the April highs of 76.72) which attracts a lot of foreign money into the Indian equity & debt.
Q) It looks like it is raining IPOs - we saw bumper responses for both Route Mobile as well as Happiest Minds. Does it look like the lull of IPOs is ending? What are your views? Any IPO which you are particularly excited about?
A) IPOs like CAMS and Chemcon Speciality Chemicals Ltd look exciting. We like CAMS given its leadership position, integrated business model, pan-India presence, and robust financials.
We recommend subscribe for the long-term to the IPO as CAMS enjoys the first-mover advantage, asset-light business model, and high entry barriers. Also, we like Chemcon Speciality Chemicals Ltd looking at the strong financials and client base.
It supplies raw materials to many API manufacturing Pharma companies like Laurus Labs etc. Overall, the sector is in demand and could outperform for the next 1-2 year time frame. Hence we would recommend Subscribe here too.
Q) Market seems to be walking on a tight rose as geopolitical concerns as well as COVID-19 cases are not coming down, but yes there is some hope of a vaccine but that too is still some months away. Are we nearing the peak – we could have a touch and go moment with 12K and then fall?
A) The market haw moved up by almost 55% (Nifty) from the March lows of 7500. This has been one of the best phases of the market in recent times where we have seen such a sharp rally in a short time frame of 6-months.
Overall, we have seen broader participation across the large, mid, and small-cap space. In fact, the mid-cap & small-cap indices have outperformed the NIFTY in the past 6 months.
The market is taking cues from global markets and improvement in the domestic economic data points on a MoM basis. E.g. auto sales, power demand, tractor sales, consumer goods etc. so as long as this revival continues the market could rally with some rotation in the sectors.
The key factor to watch out for would be the Q2 numbers in terms of demand revival and the management commentary on growth.
Q) One space that will still remain popular even if Sensex, and Nifty falls, and that would be small & midcaps. Do you think the smart money or has it already started rotating towards quality small & midcaps? Any stocks that are on your radar?
A) The retail flows have started rotating towards midcap and small-cap names. In fact, the small-cap index has recovered 88 percent from the 52-Week low and trades just 6 percent away from the 52-week high.
Though it is still 37 percent away from life high, we have seen very good participation in quality small and mid-cap stocks for the past 2-3 months.
Few names which we like from the midcap space are Aditya Birla Fashion, JK Cements, Tata Power, Ashok Leyland and Dr. Lal Pathlabs.
Also few names from small cap space which we like are IEX, Birla Corp, Teamlease, Essel Propack and KEI Industries.
Q) The 50% rally in the Sensex, and Nifty was largely led by roughly 10 stocks while the rest of the market suffered and that is why there was no jubilation among the investment community. Now, when the tide reverses could these stocks face selling pressure and investors should at best book profits? What are your views?
A) In the current market rally the big has got bigger (classic examples are RIL touching 15 lakh cr mcap and TCS touching 9 lakh cr m-cap). There are many such companies which have done well in the past 6 months and have gained market cap.
But, definitely one can say that all the stocks have not participated in the rally and there are many laggards depending upon the type of business, debt level and the effect of the lockdown on their business.
From an investors point of view, it is important that they have exposure to sectors which are likely to do well over next 1-2 years (e.g. Telecom, IT, Pharma, Rural Sector & Automobile)
Q) So we keep on talking about quality small & midcaps. How do you define quality?
A) Quality could be a combination of parameters. financial track record, Return ratios like RoE and RoCE, Cash flow, debt to equity, promoter and management pedigree, current promoter holding & pledge, Transparency on disclosure, & dividend policy of the co.
Q) Warren Buffett, the man who pioneered buy and hold investing, just made quite a fast billion bucks from a type of investment he once mocked. It looks like value investing is also changing with time and Warren Buffett is leading it even at the age of 90. What are your views?
A) Absolutely, even at the age of 90, he talks about long term investments. That is the level of passion for the stocks, businesses, and markets he has. It makes sense to be dynamic in the market rather than sticking to one investment philosophy which is not giving results.
We are in the era of disruptions and innovation so one should give more weight to future growth and execution capability of the company vs pure value.
Disclaimer: The views and investment tips expressed by 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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