Rahul Jain, President & Head, Personal Wealth, Edelweiss Wealth Management, believes the rally in the market is here to stay even though there might be short-term hiccups. Speaking to Moneycontrol, he highlighted four sectors to invest in and one to avoid. Edited excerpts:
How do you see the markets positioned now? What is your outlook?
We are constructive on the market. Overall, the outlook looks positive. It is always difficult to predict the short term. I think, predicting or giving assessment on the medium and long term looks easier, because the India story is fairly strong.
And I would say that it is driven by multiple factors. One is the robust domestic demand. We have been seeing prudence in terms of monetary policies as well. If you see the way our overall financial monetary policies have been working versus what we have seen globally, I think we are in a far better space in that sense. Apart from that, I think, the story of China+1 is playing out now, along with Europe+1.
Do you have any target for Nifty for the next one year?
I personally see Nifty going up by 10 to 15 percent in the next one year.
In which sectors are you investing now?
Sectors, which we are investing right now or we should look at, are largely banking, auto and auto ancillary, IT and capital goods.
BFSI is seeing strong growth. And, I think, valuations are also fairly accurate. For example, a bank like SBI is trading at 1.5 times book value. Moreover, a large clean-up has happened on the balance sheets. Thus, we feel that the sector looks fairly attractive. I like the top three private banks ― ICICI Bank, HDFC Bank, and Axis Bank. Auto and auto ancillary also look attractive. Input costs have gone down. Domestic demand remains robust. If we move to the other two categories, large IT stocks have shaved off a lot in the last six months and they now look fairly valued. So, building up a portfolio of technology stocks right now might not be a bad idea, and, I think, it seems to be a good option. The last one which looks good is capital goods. There's robust order book across capital goods and there's a lot of government-led capex, which is helping out. You might find a lot of growth in the next 12-18 months. So, a company like L&T looks fairly interesting from that perspective.
But can rising interest rate be a speed-breaker for auto?
There can be an impact, but I think it will get offset by the robust demand. Apart from that, in the last 12-13 months, they have been giving zero discount or charging a lot of premium. So, if tomorrow because of interest rate there is some stretch, I think, these auto companies have the ability to give some discount, etc.
What are the sectors you are avoiding?
What you should avoid is the chemicals sector, which is fairly valued. All the companies which are very highly priced, and if they are unable to maintain the numbers or achieve consensus numbers, their share prices might see a correction in the coming months.
In the chemicals sector, there are two angles to look at. One is that they have announced a lot of capex, they're expanding their production. Another is you have Europe+1. Don’t you think these positives could play against your projections?
I agree with your point about Europe+1 or China+1, which may result in demand coming here. But these will play out in the medium to long term. When we took a view it was more of a 6-12-month horizon. If the prices correct and valuations come down, you can take a bite.
Mutual funds saw their golden period in the last five years. Do you see the PMS-AIF industry also seeing the same?
There are two large trends. The mutual fund industry is seeing a lot of inflow for sure, but it is not able to beat the larger indices in terms of performance. On the other hand, the growth in ETFs, (which) is a low-cost alternative to large-cap mutual funds, is remarkable.
Apart from that, the commitment on AIF Cat-II is now above Rs 5 lakh crore from almost negligible five years back. You have seen humongous growth coming in other categories as well with overall commitments at around Rs 7 lakh crore.
HNI and UHNIs, who have tasted blood in the equity segment, are moving into specialised strategies where they see opportunity to create more value. For example, investing in the unlisted space. Till about five to six years ago, a large number of these engineers invested their money either in real estate, gold, or fixed deposits. Now, they're getting comfortable with equity and specialised strategies. That is where the whole growth is coming from.
Haven’t valuations for start-ups gone down as funding has dried up?
I agree that funding has dried up. But I would say that right now there are no concerns in that sense, because people are still keen on investing, as there have been a lot of successful investments on the start-up side. And that is giving them confidence.
Moreover, the AIF category that invests in start-ups allows you to invest in small buckets with a large diversified portfolio. The chances of you going completely wrong is very, very slim. And that gives a lot of cushion to the investors.
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