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Last Updated : Sep 22, 2020 03:19 PM IST | Source: Moneycontrol.com

'Economic reality to drive market going ahead; book profits on near-term highs'

Allocate 25-30 percent of funds in this quality mid & smallcaps25-30 percent of funds in this quality mid & smallcaps, Tapse said

Sunil Shankar Matkar

Based on the sharp recovery since March 2020 a near-term market consolidation cannot be ruled out. Going ahead, from now, the ground-level reality of the economy will drive the stock market momentum and investors are advised to keep booking profits as and when the market makes fresh near-term highs," Prashanth Tapse, AVP Research at Mehta Equities said in an interview to Moneycontrol's Sunil Shankar Matkar.

edited excerpts:

Q) Three IPOs- Chemcon, CAMS and Angel Broking- hit D-Street this week. What is you take on the public issues?

Close

A) Since the reopening of the economy, the market sentiment seems to have improved and the market is really paying up for new growth stories. We believe IPO attraction will continue to allure investors after successful IPO subscription and listing of Happiest Minds and Route Mobile.

CAMS: We recommend investors to subscribe to the issue for the long-term only as the market always rewards a player who has the growth potential with high returns. CAMS enjoy a first-mover advantage with no listed players for valuation comparison and high entry barriers protecting investor’s risk.

Chemcon: We recommend investors to subscribe to the issue for long-term as well as listing gains as valuations at the upper price band (Rs 340) looks attractive and reasonably priced when compared to its peers. 

Angel Broking: We recommend investors to subscribe for listing gain as valuations at the upper price band (Rs 306) looks attractive and reasonably priced when compared with to its peers. 

Q) After hitting the highest levels since February this year, the market has been rangebound. What is your thought on the current market situation? Is a correction in the offing?

A) Based on the sharp recovery since March 2020, the near-term market consolidation cannot be ruled out. GGoing ahead, from now, the ground-level reality of the economy will drive the stock market momentum and investors are advised to keep booking profits as and when the market makes fresh near-term highs. However, the medium to long-term outlook still offers potential opportunities as a revival in demand is expected due to unlocking of the economy resulting in better than expected corporate earnings in H2FY21.

Q) How do you see the risk of COVID-19 on market at the current juncture? Also, what are other risks (global and domestic) that one should keep in mind before investing? 

A) We are inching closer to the tenth month of the pandemic and there seems to be no respite from the highly infectious contagion which is ravaging the world. India has been reporting nearly one lakh new cases every day, which is a grave concern for authorities. The rising number of COVID-19 cases will likely to haunt investors' sentiments. As of now, more than 150 companies are in different stages of clinical trials and more than 25 percent of them have reached the critical last leg of human trials, which is good news getting discounted and keeping markets stable. Net to net, the path to economic recovery will be slow and bumpy until the spread of the virus is under control… So, all bullish eyes will remain glued to the developments on the vaccine front.

Meanwhile, the big catalysts before investing:

1. US Stimulus Package: Investors will remain anxiously hopeful that America’s economy eventually will receive another shot in the arm in the form of government spending.

2. The rise in global coronavirus infections.

3. The US-China tensions racketing up.

4. Brexit challenges lingering.

5. November US Presidential elections

Q) What is your take on the IT sector? 

A) Shares of the IT major were in demand during last week after HCL Technologies revised its September 2020 quarter revenue guidance which triggered analysts to remain optimistic on the sector as a whole. We believe IT spending has gradually increased irrespective of any sectors as software is becoming a really integral part of our lives, and COVID just crystallised the need for digital transformation. For medium-term (3-6 months), we like Infosys.

Q) Do you expect any kind of tech bubble in coming months like Dot-com bubble seen 20 years ago?

A) May not be in the same scenario today for any Dot-com bubble as it was way behind 2 decades, we see there is a big difference from the companies that went public in 1999 era and the onees which have gone public now like Snowflake. Those in 1999 were young start-up internet companies with very little revenue & customer base, whereas, this year most of the tech companies that went public, have significant sales turnover and a proven track record.

Q) Are midcaps and smallcaps still lagging largecaps in terms of valuations?

A) Yes, the price-earnings multiple of the Nifty Midcap index, which was at a discount to the Nifty50 just a few months ago, is now at a premium to largecaps. We advise investors should not panic and hurry to add such stocks in the portfolio. Even Fund managers are not in a hurry to simply add-on smallcaps just because of the new rules. The risk aversion in the financial system hurts smaller enterprises more than larger firms, which have stronger balance sheets. Well, we suggest investors with suitable risk appetite to consider allocating 25-30 percent of funds in this quality mid & smallcaps segment courtesy to SEBI intervention into Multicap regulations which can trigger a meaningful revival in the space.

Q) Should one invest in pharma stocks now given the 45 percent rally year-to-date and 85 percent from March lows? What are some of your picks?

A) Considering the current need of the hour for vaccine and gaining immunity against the virus, the pharma sector will remain an investors' favourite. A few years back, pharma was the biggest underperformer but the last six months it has outperformed almost all sectors as it is the only sector high earnings visibility and COVID-19 pandemic has bought this space in the limelight.

With less the 5 percent of GDP being spent on healthcare in FY20, India is under-invested to take care of the rising demand for these services. Hence, high visibility in earnings can be seen from here and the market has re-rated the sector with expectations of earnings to double 3-4 years from now.

For medium to long term (6-12 months), in Pharma with like counters like Sun Pharma & Dr Reddy's in largecap and GSK Pharma & Granules India in midcap space.

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.
First Published on Sep 22, 2020 02:54 pm
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