Naveen Kulkarni, Chief Investment Officer, Axis Securities, says we could see a dip in the run-up to the first quarter earnings season as the results could disappoint on account of the lockdowns and margin performance, but this dip could be a good opportunity to accumulate.
Kulkarni has more than 15 years of experience in the financial services industry and specialises in fixed income markets, intermediation, origination, and distribution. Before joining Axis Securities, he served as the co-head of research at PhillipCapital India Private Limited.
In an interview with Moneycontrol's Kshitij Anand, Kulkarni said that in the near term IT, Pharma, and FMCG will do well. FMCG is a dark horse at this juncture as the sector has not performed at all in the last 12 months. Edited excerpts:
Q) What a week for Indian markets. The US Fed hawkish stance rocked the boat of bulls at least for now. What led to the price action on D-Street?
A) On a very choppy Friday trading session, the markets staged a major recovery at the end of the day from the day’s low. However, there is a clear spook factor in the Indian equity markets reminiscent of taper tantrums and the rise in interest rates of early 2018.
The midcaps and small-caps have been seeing a correction and this could continue for some more time as commodity stocks also correct.
The reasons are multifold, ranging from an earlier rise in interest rates to muted expectations from Q1FY22. The upcoming trading sessions are likely to be a mixed bag with a slight downward bias.
Q) India Inc. is showing signs of recovery, and with unlocking in many states, we could be heading for full recovery in the next few quarters. In case we do get a dip – what can be considered healthy?
A) The market has seen a runaway rally beyond expectations and dips in such a bull run are healthy. We could see a dip in the run-up to the Q1 results as the results could disappoint on account of the lockdowns and margin performance.
This dip could be a good opportunity to accumulate
Q) Do you think that the market has made a top and chances of more consolidation is much higher than a steady uptrend? What are the levels which one should watch out for?
A) The near-term top is in place but the medium-term trends still seem to be very strong. Also, guessing market levels have become quite difficult as it all depends on the sustenance of the upcycle of earnings.
That is the most critical factor that will determine the market levels. At present, barring Q1, FY22 and FY22 continue to look attractive.
Q) What is your call on the broader market space? Do you see small & midcaps underperforming and with cheap money slowly receding – time of easy money making in small & midcaps is behind us?
A) The near-term underperformance of small and midcaps ia unlikely to last very long and they will be back in flavor as many are seeing a strong earnings cycle emanating.
Q) What led to the price action on the sectoral front?
A) In the near term IT, Pharma and FMCG will do well. FMCG is a dark horse at this juncture as the sector has not performed at all in the last 12 months.
However, we note that in consumer staples, inflation is a friend and the sector performs with a lag.
This could play out in the next six months as there are price hikes and nominal growth rate picking up for FMCG companies translating into operating leverage and good earnings traction.Disclaimer
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