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Last Updated : Feb 28, 2019 01:17 PM IST | Source: Moneycontrol.com

'Mid and smallcaps unlikely to reclaim highs for at least 15-18 months'

For the stocks that have fallen significantly in recent times on account of slump sale, investors may consider buying, only if they fully understand why they are entering the trade and see a big value

Kshitij Anand @kshanand
 
 
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I do feel that the broader market has bottomed, but the bottoming-out process will take longer and we’re unlikely to see midcaps and smallcaps back to their earlier highs for at least 15-18 months, Amar Ambani, President & Head of Research, YES Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q: Due to lack of any additional triggers, do you think the geopolitical concerns are likely to add further volatility in markets and cap upside?

A: Volatility is part and parcel of the equity market. It cannot be wished away at any stage. But, it also keeps a market healthy. Sometimes the lack of triggers can be the best trigger for the market. I do believe that the market is poised for a big up move in the run-up to general elections.

On the geopolitical front, it’s an extremely proud moment for every Indian to hear about India’s air strike on terror camps across the LOC. The market may remain impacted for a day or two, but unless the situation escalates into a full-blown war (which is unlikely), the market will recover, just as fast.

Q: Do you think most of the stocks that have corrected have bottomed?

A: Price damage in a new pocket cannot be ruled out. We have seen different scrips and sectors get negatively impacted on a given day. However, I do feel that the broader market has bottomed.

The recovery though, will not be V-shaped. The bottoming-out process will take longer. While stocks can bounce 20-30 percent, but we’re unlikely to see midcaps and smallcaps back to their earlier highs for at least 15-18 months.

Q: How should value investors filter stocks that have seen a double-digit fall in the year 2019 especially from the mid and small-cap space? And, is this time to pick value stocks?

A: The decision has to be taken on a case-by-case basis. There are many stocks that rose unjustifiably when the rest of the market was rising. After their fall now, they may still not be reflecting true value. These would-be value traps.

But having said that, value has emerged, not just in pockets, but in abundance, provided holding horizon is three years or more. In times like these, check for the strength of promoter, balance sheet and whether growth prospects are intact.

Q: Any top five stocks which you think are good buys after recent carnage and why?

A: Few of our buy ideas include Reliance Industries, HDFC Bank, ICICI Bank, Birla Corp, and KNR Construction.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Q: What is your advice to investors with regards to promoter pledging? Should they stay clear of the stocks that have come under the radar?

A: Don’t buy a stock that has a big promoter pledge—this would be my first advice. Any market volatility can trigger a margin call and if top-up is not provided on time, lenders mercilessly dump stocks to make good for their loan.

They will not slice and dice orders and sell according to bid-ask to keep impact cost minimal. They want their money back by slump sale on the same day or not more than two days for sure. Such selling can cause deep cuts in the market value and sentiment of a stock.

For the stocks that have fallen significantly in recent times on account of slump sale, investors may consider buying, only if they fully understand why they are entering the trade and see a big value.

Sometimes a large fund exit or margin trigger offers excellent entry point in stocks. I remember, a few years ago, CanFin Home was down 20 percent on a day, as a fund was exiting the stock. It was a great time to enter the stock. The stock again started rising from the next day.

For retail investors, it would be best to avoid such trades. One must understand that promoters pledge their stake when no other funding alternative available.

Once the promoter loses control of his stock, the scenario may change fundamentally and sentimentally for the company. Lenders may take control if they’re unable to sell fully, promoters attitude may change if his holding has been reduced to a fraction.

Q: With additional volatility in equity markets it looks like investors are turning risk-averse. They are probably looking at fixed income products that seem to be back in flavour. What do you think? 

A: Do inflows result in a market rise or does rise in the market bring flows into equities? In the past, there was a time when FIIs were buying and DIIs were selling.

We’ve seen a time in the last couple of years when FIIs were selling but domestic flows were holding the market up. Presently, you talk about a slowdown in domestic flows.

This cycle will continue, and I choose to focus on business opportunity, promoter quality, and my entry valuation. The rest will work out on its own.

As for fixed income products, the yield is just not attractive enough at the current juncture. In fact, I see a lot of HNIs being sold debt structures, which are linked to the rise in the stock market itself!

The lure for fixed income presently is for safety, given what’s happening around us. The lure is not for returns. Therefore, this money will return to equities as the market rises.

Q: Most of the investor portfolios are bleeding and I have come across a lot of people who have sold their MFs and turned towards FDs. What would be your advice to them?

A: First, your risk appetite, return expectation and liquidity needs should form the basis of your asset allocation. So, to that extent, investment in fixed income is justified.

Secondly, within fixed income space, money should be allocated to highly-rated paper, FMPs, etc. rather than only fixed deposits.

Thirdly, equity is an attractive asset class. The froth has largely cleared. One must allocate appropriately with a 3-5 years’ time horizon.

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.
First Published on Feb 28, 2019 01:15 pm
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