Banking is a bright spot, but most other sectors are likely to witness challenges. In this environment, investors should stick to quality and sectors with earnings visibility like Banks, IT and Cement
June quarter earnings are unlikely to be inspiring and we are looking at just 6 percent earnings growth for Nifty companies. However, this is getting factored in the market fundamentals, Naveen Kulkarni, Head of Research, Reliance Securities, said in an interview with Moneycontrol’s Kshitij Anand.Edited excerpts:
Q: How should investors tread waters now and what are the triggers to watch for?
A: Post Budget, it typically comes back to fundamentals like corporate earnings. The current earnings season does not appear to be inspiring as it will capture the macro slowdown.
Banking is a bright spot, but most other sectors are likely to witness challenges. In this environment, investors should stick to quality and sectors with earnings visibility like Banks, IT and Cement.
The triggers for the market will be the management commentary on the future outlook. Infosys upgrading its guidance is a positive trigger for the industry.
Similarly, management commentary in other sectors will continue to be the key triggers for the quarter.Q: Most of the auto stocks are under pressure and some of them are even trading below 200-DMA. What is your view?
A: There is value emerging in the auto sector after the steep correction. While immediate improvement in operating performance is unlikely but stocks are more likely to find their bottom soon.Q: Do you think government's decision to borrow in foreign currencies could be a game-changer?
A: It can be a game-changer, but it will depend a lot on the risk appetite of the government and the long-term risks associated with it. The downside will be the appreciation of rupee, which will hurt the exporters and make imports cheaper.
While it could be a short to medium-term solution for liquidity but there are long-term challenges. Therefore, a balancing act will be required in infusing the right amount of liquidity, which does not hurt the long-term prospects of the economy.Q: Indian companies are facing many challenges—governance issues (recent one being IndiGo), delay in monsoon, adverse budget proposals, and muted earnings season. How do you see the near term future?
A: Indian market valuations are only slightly higher considering the changing mix of benchmark and long-term earnings prospects. While there are some challenges, but the long-term growth prospects are intact. Moreover, interest rates have been on a declining trend that supports the higher valuations.Q: SIP flows are showing an encouraging trend even at a time when most MF schemes have given negative returns. What is your outlook?
A: Inflows can slow down on a higher base but the avenues for investment are limited for long-term investors. Real estate returns have declined significantly and the liquidity challenges are abundant in the sector.
Also, SIP persistence tends to be very high. Thus, while a slowdown is possible, inflows are likely to continue.Q: If someone wants to invest Rs 10 lakh now, what should be the portfolio contribution with respect to equity, FDs, gold and debt?
A: It depends a lot on the risk appetite of an individual. However, a middle-aged individual can look at 40 to 50 percent allocation to equity and remaining in debt.Q: Due to new tax proposal in budget, KPR Mill announced the withdrawal of buyback of 37 lakh shares announced in June. Do you think there will be more decisions like these?
A: There is a possibility, but things will take time to unfold and more clarity on the implications is awaited.Q: What is your call on June quarter earnings?
A: June quarter earnings are unlikely to be inspiring and we are looking at just 6 percent earnings growth for Nifty companies. However, this is getting factored in the market fundamentals.
What one must see from here is the management commentary which will remain highly critical for the company, stock and the market.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.The Great Diwali Discount!
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