There are certain economies, which are seeing good growth and have attractive opportunities. It is wise to diversify and invest in certain funds, which allow you to cash in on such prospects
There are a number of attractive businesses beyond the indices and in quality midcaps, which have over the period, deleveraged their balance sheets, navigated through the tough times and are in a new growth orbit, available at reasonable valuations, Devang Mehta, Head- Equity Advisory, Centrum Wealth Management, said in an interview with Moneycontrol’s Kshitij Anand.
Q: With volatility at 3-year high and election fever at its peak, do you see a likely selloff after the elections?
A: Short-term market movements will be more sentiment and liquidity driven and can seesaw depending upon the election outcome. Volatility is normally expected during such periods but taking advantage of volatility has to be the order of the day.
Once the event is out of the way, drivers for markets will swing from politics to fundamentals, more so on the earnings growth trajectory.
The ongoing momentum with which indices are approaching the counting day means a positive result is more or less discounted and markets may revert back to other factors like growth, valuations, etc.
Q: After the recent rally, where do you see the pocket of opportunities?
A: The stark reality of this rally has been polarization. What it means is, the markets are at a new high led only by a handful of stocks and broader markets are yet to participate in a meaningful and significant manner.
There are a number of attractive businesses beyond the indices and in quality midcaps, which have over the period, deleveraged their balance sheets, navigated through the tough times and are in a new growth orbit, available at reasonable valuations.
Quality financials, building materials, consumption, niche pharma, and certain capex oriented plays look interesting from a three-year perspective.
Q: Even though there are macro concerns, what do you think is pushing markets higher?
A: Some important factors, which have fuelled this rally, are continuous buying by the foreign institutional investors, positive trends of emerging markets, a risk on approach towards equities and commodities, expectation of stable government locally and traction in earnings of companies in the coming quarters.
Q: Among the companies that are yet to declare their Q4 numbers, do you see any bright stars that could create wealth for investors in the next 1-2 years?
A: There have been pockets of strength in numbers by IT pack, select private banks, and cement that show a bit of turnaround. Still, it is early days, as a large number of companies are yet to post their earnings.
Q: What are the mistakes one should avoid especially when benchmark indices are trading near record highs?
A: Invest in businesses that you understand. To chase extravagant returns and letting your emotions rule the process is a big mistake, which you should refrain from. Don’t let volatility rule your mind and focus on controllable.
Q: What will decide the direction for markets in the near term?
A: As the world’s third largest importer of oil (80 percent of oil requirement), India is among the most susceptible to rising energy costs. With crude at a six-month high, it poses a risk to India’s fiscal health and can alter the course of rate cuts.
The currency also has to be watched closely and can come to help or hamper the prospects of the economy and even individual companies. Elections will come and go but it is the economic growth and earnings growth, which attract investors towards markets and good businesses.
Q: What has been your portfolio strategy?
A: Our portfolio strategy is to buy and hold market leaders or high market share players across the industries and market cap spectrum.
These are high-quality franchisees with excellent return and profitability ratios. Yes, cash to the tune of 10 to 15 percent in portfolios will ensure that any volatility could be used as an advantage to buy/accumulate new or existing businesses.
Q: Do you think FII momentum will continue and if we see Modi back in power?
A: After a long hibernation, we are seeing foreign participation in Indian equities. India offers a clear domestic aspirational consumption growth and demographics, which only a few nations can boast of. Political stability and continuity of policy plus new reforms, which help economic growth, can attract both foreign and domestic flows.
Q: Global markets are also trading near highs. Does it make sense to invest in funds that have global exposure to diversify the portfolio?
A: There are certain economies, which are seeing good growth and have attractive opportunities. It is wise to diversify and invest in certain funds, which allow you to cash in on such prospects.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.