Given the uncertainty in the markets, Jinesh Gopani continues to advise investors to invest in multi-cap strategies, giving investors a healthy mix of large/mid and small caps stocks.
However, fundamental companies have shown credible performance across sectors highlighting improving consumer confidence and the strong business environment.
Markets have historically been poor indicators of election performance but elections have always enticed animal spirits on the Indian bourses.
The short-term trends around elections are likely to keep market participants on their toes. We continue to believe that the markets are likely to trend higher on the back of strong fundamental performance of companies as compared to event-based reactions.
Q) Do you think it is time to spot some beaten down small & mid-cap stocks in the broader market?
A) 2016 and 2017 were the years of small & mid-caps. The significant outperformance over large-cap peers created a large valuation gap.
Furthermore, unreasonable growth projections by many analysts in these companies created frothy expectations. The fall in asset prices was a return to normalcy for many companies.
We continue to believe that the mid and small cap space remains fairly valued and investors have to be tactical in their allocations in this space.
Active investing is key to playing the mid and small cap space given the information arbitrage and institutional coverage. Fundamentally, the universe offers significant opportunities to investors willing to deep dive and do in-depth research.
We believe that a multi-cap approach at this juncture is ideal for investors looking for exposure at a portfolio level rather than mid/smallcap funds given the risk-to-reward ratio outlook at this stage.
Q) Do you see a Modi returning as the Prime Minister after elections?
A) It is positive for the market given the pro-industry-pro growth agenda the current government has followed since its ascent to power in 2014.
A strong vote in 2019 is likely to put to rest any policy uncertainty in several areas including financial reform and ease of doing business.
Industrial activity, especially in the construction space, has seen a marked improvement. This investment typically impacts allied sectors and business with a ripple effect on account of improving infrastructure.
Q) What are your expectations from the rupee? IT and pharma back in focus?
A) The Rupee has been one of the standout currencies over the last 18 months. Despite the dollar strength, the domestic currency has held its ground relative to the basket of EM currencies and other major currency pairs.
Currently, on a REER basis, the INR is fairly valued and we believe, given the strong economic fundamentals and stable government, the INR will continue to remain stable over the medium term.
Sectorally, we prefer IT over pharma but have been cautious in our allocations. Increasing thrust on new age technologies and strong visibility on deal wins are key positives for the sector. Furthermore, strong revenue growth has led to further optimism in the sector.
Q) Fears of global growth has again resurfaced. Should investors be worried?
A) Global growth is pegged to grow at about 3 percent given the impact of the two largest economies US and China, key cogs of the global trading system, cold shouldering each other in a cloak and dagger battle over trading terms.
Across Europe, confusion over Brexit has kept the continent on tenterhooks on the possibility of checkpoints affecting trade flow and movement of people.
India, however, remains largely unaffected by this given the largely inward nature of our economy. India is the fastest growing large economy and a diverse and young demographic.
Given the improving business environment and the large marketplace, investors both foreign and domestic have been investing in India given the growth prospects.
As domestic investors, events in the global marketplace should matter less than what is happening globally.
Q) The big rally that we are seeing in mid & small-caps stocks. Is it FoMo playing out? Should retail investors fall into this trap?
A) Mid and small cap stocks have been beaten down over the last 6-9 months on the back of elevated valuations and mispriced growth prospects. The large premia over large-cap stocks led to this normalisation of prices in this space.
While mid and small caps continue to remain fairly priced, tactical allocations in select mid/small-cap stocks may be considered given the opportunities that companies in this space offer.
We continue to find opportunities in companies with niche businesses and sustainable growth models.
However, given the uncertainty in the markets, we continue to advise investors to invest in multi-cap strategies, giving investors a healthy mix of large/mid and smallcaps stocks.
Disclaimer: This represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.