Market is in a short to medium term downtrend: Alchemy's Hiren Ved

The market is in a short to medium term downtrend, Alchemy Capital Management CEO Hiren Ved told CNBC-TV18.

“We will probably continue to see some earnings and margin pressure going into the first quarter. Most of that should get priced in because, with these results coming in, unless inflation goes completely out of hand, most of the stuff should get priced in,” Ved said.

Because of the headlines and the headwinds, the sentiment is really varied. “My view is that we don’t have a very significant downside from these levels.”

Mighty IT

Ved said the structural story is intact and there isn’t going to be any significant slowdown, despite valuations being on the higher side.

“Hoping that these businesses can deliver 15 to 20 compounded earnings growth over the next couple of years is pretty much possible. In an environment where inflation is a challenge, this sector, at least from a demand and margin perspective, should be reasonably okay. Most of these companies have good levers to manage margins. I clearly look at this as a buying opportunity. If there is one sector where there is visibility of earnings growth, it is IT.”

High Conviction Areas

Discussing ITC, he said, “ITC has shown tremendous pricing power and good margin. But within the consumer space, we like companies which are at the premium end because we believe that inflation is likely to hurt incomes at the lower end and there could be challenges on input price inflation. So, opening up trades, liquor companies or restaurant chains – these are areas where we think that in 2022-23, given the low base of last year, money will be made over the next couple of years.”

Ved believes that we need to be confident that the economy will recover. “Although, we have had short-term headwinds in terms of energy prices and commodity prices, but hopefully it won’t get worse from here – that’s something we need to monitor.”

Furthermore, he suggests three or four areas where investors should continue to be bullish. First being consumer discretionary which means wherever consumption is at the upper end. “It could include automotive stocks and agricultural commodity prices that we are seeing, and if monsoon is good, we should see very good cash flows back into the rural areas.” Companies which will benefit from higher agricultural product prices are good opportunities, he said.

In addition, Ved recommends continuing investing in tech and financials.

Sharing his views on long-term retail investment in LIC, he said, “Insurance stocks were valued quite expensively given the kind of long runway that people were expecting. Although now insurance company valuations are reasonable and opportunity for long-term growth continues to be intact and this is an area where investors should look at. From a medium to long-term investment perspective, insurance as a sector looks reasonably good.”