Funds tilted to momentum may have to tweak portfolio; Budget will be key: WhiteOak’s Khemka

Prashant Khemka, WhiteOak Capital

Investors will scrutinize every aspect of the new government’s budget to gauge policy continuity. If they see policies continuing in the same direction with minor tweaks, the market should start behaving normally again, says Prashant Khemka of WhiteOak Capital.

Khemka spoke to Moneycontrol on the June 4 Lok Sabha election verdict, what this means for the markets and investors and what could be next for India’s growth story.

Edited excerpts:

What do you make of the market panic on Tuesday and where do you think we're headed from here?
The focus will shift to how the new government, with its new ministry makeup, handles events like the budget, which now become even more critical than they were just last week. Investors will closely scrutinize every aspect of the budget to gauge policy continuity. If they see policies continuing in the same direction with minor tweaks, the market should start behaving normally again.

How much of the premium that Indian markets command are because of this government?
Considering the numbers right now, they still suggest (policy) continuity, although not as expected. But let's assume that's not the case, and there's a weak coalition government formed, as in 2004. If it were to happen, the shock could be significant, possibly in the range of 25 to 35 percent. The market multiple might slide below 15 times, down from the current 21 times. However, this is a hypothetical worst-case scenario.

Over the next two to three weeks, do you anticipate large fund managers, including you, resetting their strategies?
If fund managers are heavily invested in specific market segments, driven by recent momentum, they might recalibrate their strategies. However, our team maintains a balanced portfolio from a risk management perspective, so we don't feel the need to make significant changes. We won't deviate drastically from our current portfolio allocation. Retail investors might need to reassess their portfolios, especially those heavily invested in recent market trends.

Also read Market churn will separate men from boys in PSUs, India story has legs: Kotak’s Nilesh Shah

Where do you think momentum will shift if there's a shift away from the current market favourites?
Predicting where momentum will pick up next is challenging. It's more apparent that momentum in recent market leaders might wane.
While certain sectors have shown momentum in recent quarters, we might enter a phase where momentum isn't concentrated in narrow market segments. FMCG and pharmaceuticals tend to perform well in volatile markets, holding steady regardless of market movements.

With the weak mandate for NDA, does the narrative around India's growth story lose some shine?
Investors, including foreign ones, take cues from the market. Yesterday's market dip will prompt them to seek explanations and reassess their views. Some might see it as an opportunity, while others might adopt a wait-and-see approach. Compared to Monday, foreign investors might have a mixed response. Some might wait to observe market behavior over the next few months, while others might see it as an opportune moment to invest. Overall, the narrative around India's growth story might be reevaluated in light of recent events, but its strength remains intact.

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