Investors with a horizon of less than a year should wait for some more time, but a short-term trader can take a long bet with tight stops.
There is a high probability of the Nifty touching 10,000 levels by year end, as a correction in valuation of the top 10 stocks is impending, Jimeet Modi, CEO & Founder, SAMCO Securities, tells Moneycontrol's Sunil Shankar Matkar in an interview.
Q: Is the current situation a repeat of the 1997 slowdown that continued for nearly six years?
A: It is too early to dub such a slowdown as a repeat of 1997. The current government seems very agile and is quick in decision-making to avert any such long drawn slowdowns in the economy. However, global crisis can derail our growth estimates, but that probability looks small as of now.
Q: Would you be surprised if the Nifty breaks 10,000 levels? What factors do you think could drive it?
A: The Nifty has a higher probability of touching 10,000 levels by this year end, as a correction of excess valuation in financials of the top 10 stocks by weight is impending, given that they experienced a good rally this year. Markets do not keep imbalances for long, sooner or later they get corrected.
Q: Are measures such as an interest rate cut, GST rate cut and a stimulus package enough to bring the economy back on track and revive market sentiment?
A: Sentiments will change in their own sweet time and no quantum of external steroids can change them overnight. However, GST cut, interest rate cut and stimulus packages do act as catalysts in bringing about positive sentiments, which in a way enable quick recovery.
Q: The Nifty Auto Index has gained over 1.5% in August, so far, against a 0.6% fall in the Nifty 50. Does it indicate that the price damage in auto stocks is over?
A: Yes, for the moment it seems to be over, however, post the festive season if the demand still remains anaemic, then another round of sell-off can take these auto stocks lower. But currently due to massive shorts in the derivatives segment, the downside seems capped, especially since the Nifty Auto Index is down 37.5 percent from September 1, 2018, while the Nifty 50 is down by only 6.4 percent for the same period.
Q: What should be the strategy now? Will it be better to preserve capital or invest in beaten-down stocks?
A: It depends on the time horizon, if an investor wants to invest for a five-year horizon then this is a good time to invest in quality stocks with low debt, efficient management and sound operations. Investors with a horizon of less than one year should wait for some more time, but a short-term trader can take a long bet with tight stops.
Q: Is the current slowdown purely cyclical? Until about a couple of months ago, investors were hopeful of a recovery around Diwali but they are not so sure anymore. Your view?
A: The slowdown began some 18 months ago but was not blatantly visible. Now because the Nifty is down, the same is the talk of the town. The real economic data will tell the true picture which does point out some pain points in the economy, but as such relying only on indices and drawing a conclusion would be little far-fetched. For the moment, the slowdown looks cyclical.
Q: Is this the right time to buy stocks of companies that delivered strong Q1 earnings and gave strong commentary?
A: Yes, in any market, investors should always look for quality companies which deliver strong earnings growth and have been consistently delivering strong returns historically as well. Fundamental checks should always be done before picking stocks.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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.