The market could remain volatile for a while till there is clarity on the policy front, Kotak Mahindra Asset Management’s MD Nilesh said in an interview to Moneycontrol. But there are many factors going well for India compared to other emerging markets he said. Both good quality and low quality PSU names are seeing sharp corrections, but the ongoing churn will separate men from the boys, he said.
Edited excerpts from the interview.
You had mentioned that the market was looking for a clear mandate. But the results are clearly disappointing. What is your take now?
When markets expect something and the actual event is different from the expectation, a reaction is inevitable. Till such time the government is formed, there is clarity on the policies, and clarity on how this election verdict has been discounted, markets will remain volatile.
Would you look at this as an opportunity or wait for things to settle down? Because a lot of quality names as well, SBI for one, have tanked 20 percent.
To an investor, my recommendation is: please follow your dharma of asset allocation. If you are extremely underweight equity, yes, then you can take some position now, but don't put everything at one go. If you are neutral equity allocation, then wait for uncertainty to get settled.
What about those wanting to invest lumpsum in mutual funds?
Consider funds like multi-asset allocation fund or balanced advantage fund where fund managers will adjust their equity allocation depending on market valuations. As a professional investor, I will wait for this dust to settle and then take a call on portfolio construction.
Could doubts over the pace of reforms dampen the overall sentiment in the market? Do you see domestic fund flows slowing down if there is an expectation reset?
Undoubtedly there are concerns that the pace of reforms may slow down and that could hurt economic and corporate earnings growth. However, many other factors are in favor of growth sustaining. GDP grew 8.2% last year and the momentum is strong, oil prices are down as OPEC plans to increase supply. Also, for the time Nifty 50 earnings came ahead of initial estimate at the beginning of the year.
What about other emerging markets looking more attractive to foreign investors?
Our peers are also going through serious upheaval. Russia is engaged in Ukraine, Brazil has a communist government, and South Africa has coalition government formation under process right now. China is stuck with a real estate bubble and Taiwan. So for global investors, despite current volatility, India remains a long-term destination.
Stocks like REC and PFC have been battered. Do you expect PSU stocks to witness the most uncertainty? Any names you like in this space?
For some time, we have been cautioning that low floating stock counters where there is concentrated holding are trading at a very high valuation. Those are correcting now. As collateral damage, so are some of the PSUs which have large floating stock and but also reasonable valuations. My feeling is that in this kind of churn, men get separated from the boys. This is the market where reasonably valued stocks probably will outperform more expensive valuation stocks. This applies not just to PSUs, but to the whole market.
How much of the PSU valuation, especially in banks, you think is because of the business inherently versus the role that the government has had to play?
In a time of high interest rates, banks with a better ability to borrow low-cost deposits, will do better compared to banks which have to pay a higher cost of deposits. PSU banks are at an advantage there because of their extensive branch networks. Also, because of the bad loan clean up over the last few years, bank balance sheets are in a much better shape. What will matter hereon is valuation, credit culture and credit deposit ratio. It is a mixed picture right now. Many PSU banks still have room to correct, and there are others where valuations have softened a bit.
Looking at the extent of Tuesday’s correction, what target are you giving for Nifty by the end of the year?
It is always difficult to predict markets. All I can say is if Nifty falls below 21,884 (yesterday’s close) by the end of the month, it’ll be a good opportunity to add to your portfolio. Traders, all the very best and follow the dharma of stop loss, and for investors every dip is a great opportunity to buy. Our long-term story remains intact.
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