In 2018, Jimeet Modi of Samco Securities expects outperformance from pharma, textiles, industrial machinery and cement
Jimeet Modi, CEO & Founder at Samco Securities, said SAIL, Tata Motors, Shree Cement, Lupin and Indian bank lists five hidden gems. “These companies are available at the low valuations.”
In 2018, he expects outperformance from pharma, textiles, industrial machinery and cement.
Excerpts from his interview with Moneycontrol News’ Kshitij Anand
A: Indian markets are sensitive to international macro developments, especially when they are financial in nature. Monetary tightening among all is the most watched out factor. The meeting of Trump and Kim may have made historic headlines but that has little direct significance to the Indian market.
Of late, foreign institutional investors (FIIs) had turned wary following the introduction of long-term capital gains tax (LTCG) on equities in Union Budget 2018-19. One should also not forget the over Rs 14,000 crore Punjab National Bank (PNB) scam and repeated signals from the US Federal Reserve to hike interest rates that have impacted appetite for Indian stocks.
The Federal Open Markets Committee raised interest rates by 25 bps and signalled two more rate hikes in 2018 which led to an uptick in US bond yields.
FIIs have been offloading stocks in the cash market of late. They offloaded shares worth around Rs 12,000 crore between February 1 and March 7 after having pumped Rs 13,781 crore in January and Rs 49,729 crore in the whole of last year.
Nonetheless, there are no positive triggers right now for them to change their outlook. These are short-term disruptions, but they would not continue for a long time.Q: We have seen a carnage in the small & midcap space with a double-digit fall in quality stocks. Can we look for value buys or bargain hunt? Investors should stay put as the valuation quotient still remains high with respect to largecaps?
A: The Nifty increased 27 percent and Nifty Midcap rose 46 percent in 2017. However, in 2018, Nifty rose 2.5 percent whereas Nifty Midcap declined 12.5 percent year-till-date (YTD). This is just a short-term pause, correcting excesses and thus there should be no reason to sell unless the company's fundamentals have deteriorated. So, investors should hold on to their existing picks.Q: Top five hidden gems which nobody is tracking but are a pretty good buys at current levels?
A: We feel SAIL, Tata Motors, Shree Cement, Lupin and Indian bank are hidden gems. All companies are available at low valuations. There is a lot of pessimism around these names and the fundamental turnaround in these companies is not being noticed by the market.Q: Mutual funds registered Rs 50,000 crore outflows in May. Liquid funds were the worst hit, but equity funds and equity-linked savings schemes together saw net inflows of Rs 11, 350 crore despite volatile equity markets. Most mutual fund portfolios displayed muted performance. Do you think that if the volatility persist it would push investors away from MFs?
A: Indian investors have turned mature. Monthly systematic investment portfolio inflows itself account for about Rs 6,000 crore which is keeping the tap open, although foreign portfolio investors had a negative stance on Indian markets. This SIP corpus is increasing month-after-month post-demonetisation. In SIP portfolios, the impact of volatility has evened out and hence short term underperformance will not drive away investors from mutual funds.Q: Corporate numbers for March quarter were okay, if not bad. Do you think global investors are just focusing on what is going to happen to the Narendra Modi-led government in 2019 and upcoming elections in Madhya Pradesh and Rajasthan?
A: For FPIs, outcome of 2019 elections is an important factor while deciding their India investment strategy, in addition to overall valuations compared to peer countries. Global liquidity concerns, monetary tightening and currencies also dictate their India investment decisions. State elections per se will not affect markets.Q: Do you think concerns over the banking sector are over after the recent meeting of interim Finance Minister Piyush Goyal? Does it make sense for investors to catch the falling knife? If not, what are the other areas in the financial space which are looking attractive?
A: The concerns over state-run banks still persist. Recovery is happening at a snail pace due to legal processes. However, the worst is priced in and any swift recovery in non-performing assets would entail a fast recovery in stock prices.
The recent meeting with the Finance Minister was merely a procedural one. However, an urgent fund infusion is required in banks on which no comments were made, which is disheartening for the market.Q: Apart from financials, which other sectors will shine in 2018? The leaders of 2017 were metals and select autos. Do you think the dream run in these sectors is over?
A: The market always does the unexpected and what everybody is expecting seldom happens. This year the outperformance would be from pharmaceuticals, textiles, industrial machinery and cement.
Previous year heroes may just languish or underperform the broader market. The risk-reward ratio at this level is quite attractive to create short positions. On the downside, 10,417-10,300 levels will be targets to watch out for.Q: Indian bond yields climbed 8% last week. How should investors decode this and what will be its impact on markets and debt funds?
A: Yields are so far within limits. If they cross 8.5 percent and beyond, panic can set in and this will also affect the equity markets too. We are keeping our fingers crossed and watching this Laxman Rekha.Q: Are you bearish on the rupee? Where do you see the currency at the end of the year?A: By December-end, the rupee should touch 69 -70 per dollar.