Macros, fundamentals, earnings will matter more for markets than simmering geo-political conflict, says Nilesh Shah of Envision Capital

Macros, fundamentals, earnings will matter more for markets than simmering geo-political conflict, says Nilesh Shah of Envision Capital

Even as equities are seeing heightened volatility amidst the ongoing India-Pakistan geopolitical tensions, Nilesh Shah of Envision Capital believes that ultimately the markets will react more to macros, fundamentals and earnings.

He further is of the view that while the next couple of months could see some amount of consolidation, a fresh uptrend can be expected post-July.

“I think there's a realization that ultimately it's going to be the macros, the fundamentals and the earnings that matter a lot more than a simmering geo-political conflict,” said Shah in an interaction with Moneycontrol.

“I would probably think about March, May and June to be months of consolidation. I think probably the markets are going to digest the earnings season. The markets are going to essentially digest the developments on the geopolitical front, and the markets are going to see the progress on the bilateral trade agreement with the United States. I believe that all of these factors put together, is something, which the markets are going to essentially kind of digest. And from there on, we are going to basically start the fresh uptrend. Maybe post, July onwards,” he added.

After a relatively range bound trading on Thursday – the first trading session post the India retaliation – Friday saw the benchmark Sensex shedding more than 1300 points during intra-day trading.

Shah, meanwhile, is of the view that while the markets may be volatile, the probability of falling below or touching the recent lows is less than 50 percent due to a combination of positive factors.

“I would probably put a less than 50% chance to that happening because we saw those lows sometime in February and early March. Between then and now, we have clearly seen a set of positive factors emerge. One is essentially the start of interest rates coming down. Then we saw liquidity condition becoming a lot better. Third is essentially crude oil prices have come off quite significantly,” said Shah.

On the earnings aspect, Shah believes that the numbers have been “positively surprising” even as a large section of the market was looking at the March quarter numbers with a “fair bit of caution”. Barring IT services that saw “tepid to weak” earnings, most other sectors including consumers, banks, and NBFCs reported strong numbers.

With FPIs showing a strong buying intent in the last few trading sessions, Shah believes that foreign investors will continue to look for opportunities outside US due to multiple factors including de-dollarisation and the weak outlook for the US markets.

“The outlook for the US market is not as bright as what it has been for the last few years. Secondly, there is a whole wave around de-dollarization. I think de dollarization is a reality and therefore markets like India are likely to benefit from this full opportunity around de dollarization. And third is basically that prices coming down, India's macros are likely to look a lot better than what they have been over the last one or two years,” explains Shah.

In terms of sectors, Shah is bullish on domestic consumption and financials, while advising to stay away from large-cap IT services companies, commodities.

While defence stocks have been in the limelight due to the ongoing developments, Shah believes that the sector offers long-term structural opportunity but investors need to be cautious given the recent run-up in prices.

“We like the defence opportunity. I think that's a long term structural opportunity. Just that a lot of the defence stocks have moved up quite significantly in the last few months. So I would essentially advise caution from an entry point of view. If for any reasons, there would be correction in the stock prices, maybe that's a better entry point to kind of really look out for. So while the long-term prospects from demand, from growth, I believe, are very, very strong, very appealing. it's just that the prices have to essentially, kind of come off for them to kind of present a compelling opportunity for long term investors,” said Shah.