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MC Interview | 5-10% correction looms on short-term prospect in market, says Rajiv Kapoor of Trustline

Investors should be cautious about valuations and must not enter or chase any stock without proper analysis and research

October 31, 2021 / 09:09 AM IST

Rajiv Kapoor, Vice-President at Trustline Securities, says that buying quality stocks at reasonable valuations is a prudent strategy for the moment. “A correction of 5-10 percent looms over a short span in the market. Long-term investors can hold and accumulate stocks for long-term gains,” he says in an interview with Moneycontrol.

Most of the momentum with respect to the second-quarter earnings has factored both on the positive and the negative sides in the market. Kapoor is hopes for good results from the IT, infrastructure sector and pharma sectors.

Excerpts from the interview:

Do you think the ongoing corrections will drag the Nifty down 17,000 in November series? And, there are more corrections on the cards for the broader market than the benchmarks?

The Nifty50 has violated its key levels - 18,000 and the benchmark index slid even further. Going ahead, 17,550-17,600 is a key support zone, which can attract fresh buying. A short-term range for Nifty50 has shifted lower and that it is now expected to trade in the range of 17,500-18,000 over the next few sessions. Now, 18,000 and 18,050 would be the key hurdle for traders.

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Do you think Morgan Stanley downgrade was the trigger for this sell-off? And, do you think the Fed policy meeting would pressure the market further?

Morgan Stanley has downgraded domestic equities after strong relative gains and recommended taking some money off the table. While the fundamental leading indicators are positive, the valuations seem strained in the short-term, because of high energy costs, inflation, steep price rally and possible rate hike by the RBI in February 2022. As far as the Federal Reserve heading towards tapering of economic stimulus, this has already been factored in by the markets.

Is it the time to be more cautious and take home whatever profit has been  earned so far?

The market has rallied and delivered 105 percent for the last one-and-a-half years. So, the market may see profit-booking in certain pockets like IT, metals, mid-correction in realty space. Therefore, profit-booking may be done in overvalued stocks. After such a mad bull run, investors should be cautious about the valuations and must not enter or chase any stock without proper analysis and research.

Selecting quality stock at a reasonable valuation is a prudent strategy apart from providing valuation comfort. Moreover, a correction of 5-10 percent is looming on a short period in the market. Long-term investors can hold and accumulate stocks for long-term gains. Apart from that, after meaningful corrections, they can enter and accumulate quality counters and then an upward move is expected.

What is your reading from the September quarter earnings? What are the stocks to go for now?

The domestic markets are riding on the hope that Indian companies’ earnings momentum will continue in the September quarter of FY22. Corporates may be announcing results as per market expectations. With the lifting of COVID restrictions in most of the countries, there is a demand uptick from the various underlying sectors. So, one can look into the spaces for instance, infrastructure, oil and gas, metal, capital goods, housing finance companies and banks.

By and large, most of the momentum with respect to Q2 earnings is already considered both on the positive and the negative sides in the market. There is, however, some legroom for any surprise from companies. We can expect good results from the IT, infrastructure and pharma.

Tactically, the entire BFSI space can be surprising in the backdrop of a credit growth pick-up, low provisioning, improvements in asset quality and good revenue visibility and pretty good numbers from giants like HDFC Bank, ICICI Bank and Axis Bank but weaker performance from the likes of Kotak Mahindra Bank and RBL Bank. The top picks are HDFC Bank and ICICI Bank.

Broad-based technology adoption across geographies and verticals to benefit IT companies and mid-high single digits can be expected from this sector, where the top picks would be TCS and Wipro. Low interest rates, subsidies and push for housing would lay ground for better tailwind for housing finance companies, cement and related materials like LIC Housing Finance, HDFC, PNB Housing Finance, UltraTech Cement, and Shree Cement.

Reduction in inventory levels, policy push and low interest rate are booming for leading real estate players like DLF, KNR Constructions, Sobha and Godrej Properties which are top picks.

Investors, who are aiming for a long-term horizon, can accumulate quality stocks at any meaningful correction in the market. Traders can use this earnings season on account of increased volatility.

What is your reading on the F&O expiry and rollover data and what is the indication about market trends in November series?

Traders rolled over fewer positions to the November derivatives series due to uncertainty in the market as the Nifty formed a large black-bodied candle on the daily chart and sided below the 20-day simple moving average, which is broadly negative for the market. Nifty rollovers stood at 73 percent on a provisional basis, lower than the previous expiry of 75 percent.

What are the sectors to watch out for in November, especially after recent correction?

Realty and Infrastructure: This sector has started showing green signs of recovery after three years of underperformance and coming out of 10 years of prolonged consolidation. Various tailwinds for instance, low interest regime, push for affordable housing, RERA and policy initiative, government infrastructure plan with Gati Shakti master plan etc. are at play right now.

Banking: Banks will continue to strengthen their financials by raising capital and adding to provision buffers, continued improvement in asset quality, margins improvement, on-balance sheet provisioning buffers, and reduction in stress related to COVID-19 with their systematic approach. However, some stress will be there in the retail and MSME books. A pick-up in economic activity is expected to drive credit growth. Declining credit costs as a result of improving asset quality will lead to improvements in profitability.

Textile: The second COVID wave slightly impacted the textile sector’s supply and demand dynamics. However, China’s plus-one strategy, diversification of supply chain, PLI scheme of the government, gradual opening up in full scale, stronger balance sheet and ample liquidity will help this sector’s credit profile to remain stable in FY22, ban on cheap exports from Bangladesh, solid export to the US and Europe are strong drivers of long-term growth.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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Sunil Shankar Matkar
first published: Oct 31, 2021 09:09 am
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