The broad market is under a phase of consolidation, and the extent of this consolidation will depend on global development like trade war and stability in the bond yield, Vinod Nair, Head of Research, Geojit Financial Services, said in an interview with Moneycontrol.
Edited excerpts
Q: D-Street on sale. Sale up to 50%. Hurry till the stock lasts. Very familiar lines especially if you go to a market. But, is it now true for D-Street as well? Do you think that money can be made in the long run if someone invests in quality stocks?
A: Many mid & smallcaps have corrected making the prices very attractive. But, high-quality stocks and heavyweights may not have corrected in the same fashion compared to a sale in the market.
A risk is that it may happen over the medium-term as the phase of consolidation develops; hence, identification of a set of stocks will be very important to outperform the market in the long run.
Q: What would you advise investors who are holding smallcap and midcap stocks in their portfolio – buy on dips, hold or sellout on rallies?
A: We can anticipate a bounce in the market in the near-term in anticipation of the start of earnings growth from Q1FY19 onwards. By that time, stability in the global market will be the key to hold on the trend.
We have been suggesting investor shift their portfolio’s to largecaps, quality midcaps, and consumption-oriented sectors. We continue to hold that view, but now it will also be good to consider overdone stocks in the next 1-3 quarters.
Q: What should be the criteria for selecting quality stocks at current levels?
A: A high-quality stock can be bought irrespective of its valuation which may depend on the trend and the theme of the on-going market. A good quality stock is one which has a solid outlook in business and profitability over the long-term.
Leadership in the market products and strong control over niche segment/products are key for the high-quality company. Of course, management skills, operation skills, and stable balance sheet are added quality of good stocks.
Q: The recent slide in rupee caused nervousness on D-Street. Is the currency headed for lower levels in the next six months of 2018?
A: The trend of rupee is likely to be weak in the medium-term led by a reversal in fund going back to the dollar. The strength of Dollar is getting better due to likely aggressive hike in the US FED rate and reduction in QE in US & Europe during 2018.
Q: There is an FII exodus. What is pushing FIIs out of Indian markets?
A: It is not only in India but across the emerging market due to increase in global bond yield led by global risk and change in cost of funds. On YTD basis, the impact on India has been higher due to premium valuation, lack of actual growth in earnings and domestic politics.
This trend will reverse as earnings growth is likely to starts from Q1FY19 and political risk gets factored.
Q: Sensex and Nifty are still marginally positive for the year 2018 but small and midcap index are down in double digits. Can we say that the broader market is in a bear market?
A: The broad market is under a phase of consolidation, and the extent of this consolidation will depend on global development like trade war and stability in the bond yield.
It is early to presume that we are in the initial phase of the bear market since the global and the domestic economy continues to be solid in the long-term.
It seems more like a phase of high valuation which settles as bond yield matures and economy continues to grow in the long-term.
Q: What will drive Indian markets in the next six months if 2018?
A: The key positive triggers which will define the trend of the market from hereon will start in earnings growth, stability in oil prices, settlement in FIIs selling over emerging market and fear over domestic politics.
Q: Will RBI raise interest rates again in 2018?
A: Given the proactive decision of RBI in the last policy meeting we hope for some respite in the bond and equity market. In the medium-term, trajectory of interest rate will depend on the trend of inflation, oil prices and global bond yield, we can anticipate one more hike in the future.
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