There may be redemption pressure on schemes in the high-risk high-return category, which may lead to some selling pressure in mid and smallcaps, Sumit Bilgaiyan, Founder of Equity99 said in an interview to Moneycontrol's Sunil Shankar Matkar.
Edited excepts of the interview:
Q. The market has been getting support from hopes of a big stimulus package and lower crude oil prices, whereas uncertainty over the spread of the novel coronavirus and effectiveness of vaccines currently under development, have capped the upside of market. Do you think the market will break on either side of its range in coming weeks or stay volatile?
A. The situation is very fluid but if we are to assume that there are no large shockwaves emerging from global markets, we expect the market to remain rangebound for near term till further clarity emerges on the lockdown and the coronavirus cases top out and start reducing consistently. In case of any news in terms of sharp rise in cases globally or failure to come out with an effective medicine and vaccine, the markets may witness a sharp correction. Also, further significant extension of lockdown may lead to a sharp correction.
Q. Franklin Templeton MF closed its six debt funds, which was the second causality after IndiaNivesh which shut in March. Is it indicating that there could be more selling pressure in coming days which can break March lows. Will investors lose their faith like what was seen during the 2008 global financial crisis?
A. Firstly, both events are not intertwined and are outcome of different situations which were result of their investment strategy, but one common underlying factor between both events is the mindset of chasing returns and in the process neglecting the lobsided risk taken. We believe that there may be redemption pressure on schemes which are in the high-risk high-return category which might lead to some selling pressure in mid and small caps.
Q. Few days ago, some analysts were saying that the debt crisis would be the next. The Reserve Bank of India (RBI) has been doing its best to maintain liquidity, but do you think more needs to be done to avoid such crisis. What should the government and the RBI do to avoid shutting down Franklin Templeton kind of funds?
A. We believe that a debt crisis is imminent and that majority of the measures taken by the government and the RBI so far are in terms of monetary stimulus. We believe that there is a need to release a strong fiscal stimulus package which could ensure that in the short term, majority of businesses are able to survive. Only this can prevent any further shutdown of funds.
Q. What are your top five bets for the next one year, which have defended and can defend themselves in every crisis?
A. HUL: It is the largest debt-free FMCG company and the demand for consumer goods is not expected to take a major hit.
Britannia Industries: Being a large scale domestic FMCG player with no debt and strong penetration and having the ability to launch lower ticket size and quantity packings, ensures that the impact on it will be low.
HDFC Bank: Judicious mix of retail and corporate loan book enabled the bank to demonstrate strong loan book growth in previous quarter despite systemic slow down. Strong underwriting and strict monitoring of loan has enabled the bank to keep its asset quality stable. Post Yes Bank crisis, HDFC Bank have witnessed growth in deposits, leading to improved CASA ratios and NIM. Stable growth aided by tax cut will further help bank to deliver around 15 percent PAT growth. By the virtue of being the largest lender, they enjoy the comfort of having some of the best of quality of borrowers, mainly large PSUs along with NBFCs, which are more likely to weather the storm and will be able to service the debt.
Sun Pharmaceuticals: Compounded sales growth in last 10 years is at 21.39 percent and stock price CAGR of 11.58 percent. Management decisions and USFDA approvals were the factor leading a constant slacker and the stock has been a constant underperformer from since 2015. Since the coronavirus spread factor gave more interest and trust as well as visibility in pharma sector worldwide, and USFDA has also been relaxed on the norms in last one month permitting for more drug manufacturing, this gives a very positive indication for the sector.
Cadila Healthcare: Considering the cost conscious nature (pricing competition) of various export markets amidst the economical impact of COVID-19, we believe companies like Cadila with larger portfolio and integrated manufacturing will be the key beneficiaries. Logistic has been the biggest issue faced due to lockdown. Going ahead, we believe Cadila to outperform peers in US generics (as evident from double digit volume growth in YTD) and to outpace industry growth in the domestic formulations market led by its business restructuring and revamping of distribution. Additionally, its R&D initiatives have progressed well for monetisation in the near future.
Q. The volatility index cooled off considerably to below 40 levels in last four weeks. Does it indicate that there would be no major selling pressure in coming days or something else?
A. It is rather a result of the market moving sideways on account of impact of expectations of a weak FY21 having already been priced in. But we believe that it is the calm that precedes the storm and the markets may break out in either direction once a better clarity about either improvement or worsening of situation emerges.
Q. What is the F&O data indicating now and what could be the expiry level in coming week? Also, what are the things we should look at in the coming week?
A. The current open interest levels suggest that the expiry level in the coming week may be between 8,900-9,200 levels. One should look at oil prices, US and EU markets movement, rate of rise in coronavirus cases in India and specifically the hotspots of Maharashtra, Delhi, Madhya Pradesh and Gujarat.
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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