Metals are under pressure due to US-China trade war issues, says Umesh Mehta of SAMCO Securities
The 5-10 year average CAGR for largecaps is around 14 percent while in the same period midcaps gave an average CAGR of 18-19 percent, Umesh Mehta, Head of Research, SAMCO Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q: As Sensex has dived below its 100-day EMA, Supertrend and MACD are in a sell mode, what should investors do now ahead of election results?
A: Indicators such as Supertrend and MACD are more relevant to traders compared to investors. Traders take intraday, swing positions and other short-term trades looking at such indicators.
Investors get into the stock with the intention of holding it for over 2-3 years or more and rely on indicators to a small extent.
Hence, investors should ideally do nothing and sit tight ahead of election results. They should keep certain stocks in watchlist for future investments.
Q: Do you think the equity market is pricing in an adverse outcome in the upcoming election results?
A: No, equity markets currently are not falling due to elections but are down due to the escalating tensions between the US and China.
The trade war is a very big issue which is impacting the core of economies worldwide and even Indian markets have no shield to combat such situations.
Q: FIIs have pulled out more than Rs 3,000 crore from Indian equity markets in May. How do you see their strategy?
A: An outflow of over Rs 2,800 crore by FIIs in May is nothing compared to a net inflow of Rs 12,750 crore in April this year. Also, the market-wide open position is below 6-month average OI. This positioning indicates that FIIs are not taking any aggressive positions at the moment.
Q: Considerable selling was seen in oil & gas and metals. Should investors avoid these two sectors as of now?
A: Yes, oil & gas have run up and are trading at higher valuations; hence, the sector is bound to fall down further. Metals are also under pressure due to US-China trade war issues. Investors should keep away from both these sectors for now.
Q: Does it make sense to invest in beaten-down midcaps if someone is looking at a time horizon of five years or so?
A: If we look at trailing returns, it will be clearly visible that midcaps outperform largecaps when the stocks are held for a minimum of five years.
The 5-10 year average CAGR for largecaps is around 14 percent while in the same period midcaps gave an average CAGR of 18-19 percent.
Hence, investors must get into the beaten down midcaps and hold for a minimum 5-year horizon since longer the period, higher the probability of higher returns for an investor.
However, not all midcaps will perform as expected and the quality of the company must be looked at before getting into the stock.
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