Anil Sarin expects a significant upside in midcap space given the clear election mandate and expected reform announcements
We expect a significant upside in this space given the clear election mandate and expected reform announcements. One needs to be stock specific and pick stocks that have corrected a lot, despite maintaining robust performance, said Anil Sarin, Executive Director & CIO – Equities at Centrum Broking in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: Do you expect the economy to revive in FY20 and what are measures you expect from Modi government?
A: Yes, we do expect a revival in the second half of FY20 as the long-term outlook definitely looks robust. The overwhelming mandate has cleared the air of uncertainty, boosted market sentiment and created a favourable environment to attract global investors. It also ensures policy stability and continuity in the existing economic reform initiatives.
We expect Modi 2.0 administration to initiate short and medium-term corrective measures to revive investment and initiate consumption growth.
Q: As Modi 2.0 era begins, is it time to buy midcaps or would it be prudent to wait a while?
A: The midcap funds registered gains of 5.4 percent over the last week. We expect a significant upside in this space given the clear election mandate and expected reform announcements. One needs to be stock specific and pick stocks that have corrected a lot, despite maintaining robust performance.
Q: How do you read the March quarter earnings?
A: The results for the quarter ended in March 2019 have been weaker than anticipated. The factors that pulled the performance of India Inc. down in that quarter were reduced consumption and the liquidity squeeze in the NBFC sector.
However, we expect earnings growth to strengthen in FY20 post the second quarter as the budget for the year will be announced and we will have a clearer picture on the monsoon. A potential liquidity enhancement package for the NBFC sector would have beneficial knock-on effect on the economy, and this would help in the revival of corporate earnings.
Q: With valuations currently expensive, what sectors or themes could be played in the coming quarters?
A: Currently the valuations of largecaps are higher than the earlier peaks of 2006 and 2007. This calls for caution. But if we assume that there would be a turnaround in the economy, then growth-adjusted valuations would still be acceptable.
However, there are many segments in the midcap space that are trading at attractive valuations despite delivering robust results. We believe it is advisable to invest selectively in those well-performing but beaten down stocks.
Q: Experts say auto recovery could take time. Would you take a contrarian bet in the sector?
A: We would prefer a wait-and-watch approach in the case of the automobile sector.
Q: Do you expect RBI to cut the repo rate by 50-100 bps in upcoming policy meetings?A: Yes. Either RBI will go for a repo rate cut or initiate some measures like a liquidity window for NBFCs to ease liquidity in the sector and increase domestic consumption based spending.The Great Diwali Discount!
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