The foundation is set for the next leg of this multi-year bull market. We should see 50K on the Sensex in the next decade and maybe even 1,00,000 before 2030, Dipan Mehta, Director, Elixir Equities, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q: Do you think the curent positive momentum will continue till elections?
A: The market has rallied overcoming recent geopolitical tensions. This has certainly improved prospects of the ruling party in the upcoming general elections.
Money waiting on the sidelines has started trickling in, particularly in the small and mid-cap stocks. The trend may continue for a few more weeks, but large scale follow up buying is likely to emerge only if there is a favourable outcome in the general election. Opinion polls leading up to the results will also impact the sentiment be it positive or negative.
Q: Do you think it is time to spot some beaten-down stocks in mid and small-cap space?
A: Yes, the next bull market, whenever it starts, will again be in small and mid-cap stocks whether due to consumption driven by demographics or pick up of the capex cycle or financialisation of savings/growth in retail demand for credit.
The past few months have seen defensive stocks do well, but once certainty emerges be it on political front or global markets, investors will return to more risky counters.
Q: Morgan Stanley in its equity strategy said that we have entered the second decade of a bull market. Do you agree and see Sensex breaking 50K in the second decade?
A: I would not like to set a target but the foundation is being set for the next leg of this multi-year bull market. Absolutely, we should see 50K on the Sensex in the next decade and maybe even 1,00,000 before 2030.
Q: Do you think the possibility of BJP coming back to power is one big factor supporting the sentiment on the Street?
A: Yes, for the present, but we are still a long way from the voting day and unlike the last time, no party of political alignment can claim that they have these elections in their bag.
The Indian electorate has surprised us in every election and it would be foolhardy to base today’s investment strategy based on any single party having a majority.
Our view is that we are going to slip back into an era of coalitions and while that may not be such a bad scenario, the fact remains that street has to yet price that in and therefore there is a likelihood of intense volatility when election results are out.
Q: Two beaten-down sectors in the recent past are finding their footing back on D-Street i.e. PSU banks and metals. What are your views?
A: Positive on PSU banks for the short and medium term. Long-term view remains negative and these cannot be great value creators. It is just from the deep discount/undervalued zone they may move to fair valuation.
The base of earnings is in their favour and that may prompt a strong trading bounce. We are not positive on metals that have far more variable due to global price linkages.
Q: What are your expectations from the rupee?
A: The worst for the rupee is over assuming oil prices don’t cross $70/barrel. After that level, all bets are off, be it on equity, debt or currency.
Q: Fears of global growth slowdown has again resurfaced especially after ECB decision as well as OECD report. Should investors be worried?
A: Ironically, global slowdown benefits India from lower inflation perspective and therefore lower interest rates, which are still quite high on a real term basis.
IT sector may get impacted but many other sectors flourish in a low inflation era.
Surprisingly, despite impending global and US slowdown, FIIs are largely positive on Indian equities and that is a sea change from their stance over the past five years when it was domestic liquidity driving our stock markets.
Q: Is the big rally in mid and small-caps stocks due to FOMO (fear of missing out)? Should retail investors fall into this trap?
A: I would not like to term it as a big rally as yet. Small and mid-cap stocks are just playing catch up. We are nowhere near panic buying. Investors will have opportunities to buy into this market. There is no need to chase stocks.
Q: BNP Paribas sees Sensex hitting 40K by 2019 and Morgan Stanley has put out a target of 42000 for December 2019. Where do you see Sensex or Nifty by the end of the year?
A: No matter at what level we are after elections, from there, investors can expect 15 percent returns compounded for the next three years.
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