Over the next 2-3 years, wealth will be created in select small and mid-cap stocks, because stocks with high weightage in Sensex and Nifty will find it challenging to see healthy earnings growth due to high base effect and downturn in the industry cycles they are present in, Dipan Mehta, Director, Elixir Equities, said in an interview with Moneycontrol’s Kshitij Anand.
Q. What is your assessment of the market at current levels? The indices are down more than 15 percent from a record high and flat year-to-date. What is your target for Sensex and Nifty till next Diwali and why?
A. I don’t have any specific targets as we are in for a few rough months right up to the general elections in May 2019. We expect the market to remain rangebound on increased flows via SIP by lack of other investment avenues, macros and election uncertainties.
Q. Do you think the selling pressure will continue in the broader market until next Diwali or is it the right time to catch the falling knife but selectively?
A. Over the next 2-3 years, wealth will be created in select small and mid-cap stocks. Stocks with high weightage in Sensex and Nifty will find it challenging to see healthy earnings growth due to high base effect and downturn in the industry cycles they are present in.
I feel that select small and mid-cap stocks will continue to deliver earnings growth and as and when macro and political uncertainties are resolved, PE multiples for these segments will again expand.
Q. What are the major factors which will impact markets till next Diwali?
A) ELECTIONS... ELECTIONS... ELECTIONS. Although, historic trends suggest that there is no co-relation between elections and market returns, but the market attention will be focused on whether the NDA survives or not.
The reason it is important is that the alternative is a very unstable minority-led government which may not damage earnings but will impact valuation ratios.
The Reserve Bank of India (RBI) policy is another important factor and markets will heave a sigh of relief once this rate increase cycle is over.
Q. Top five stocks which investors could buy on this Muhurat Trading of 2018 with an investment horizon of 2-3 years?
A. Thomas Cook, Capital First, Delta Corp, Tata Elxsi, and Jubilant LifeSciences.
Q) Which sectors are likely to remain in focus till next Diwali?
A. Banks and NBFCs as headwinds in this sector ease, these should again become market leaders. Consumer-oriented businesses should also be targeted.
Q. What should be the ideal portfolio construction methodology for investors for Diwali 2019? Do you think investors can look at cutting down on equity exposure? (Age of investors is 35-40 years)
A. I have invested 100 percent of my savings into equities and do not regret it. My advice is to keep aside one year’s living expense in a liquid fund and invest rest into equities. Take good medical insurance and invest in your earnings capacity be it in a job or profession/business.
Q. What is your advice to investors this Diwali considering the fact every trick in the book seems to have failed to protect portfolio destruction?
A. It is part and parcel of investing, take in your stride. Prior bear markets make this one look like a walk in the park. Do not panic and liquidate your MFs/stock portfolio. Bear markets are shorter than bull markets and one needs to ride out this one.
Q. How are you reading September quarter results from India Inc. up until now?
A. Decent so far but the ugly numbers come towards the end. I think we will emerge from the earnings seasons with more investment ideas than when we entered.
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