Earnings should be better in the second half of FY20, but the critical factor will be the earnings trajectory of the banking sector in FY20.
Small caps have a greater chance of outperforming both midcaps and largecaps over the next 12-24 months. We are seeing that market volatility is reducing and that bodes well for smallcap stocks, Naveen Kulkarni, Head of Research, Reliance Securities said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: What do you believe is more important - easing the liquidity crisis or focusing on big reforms like land, labour, agriculture etc and why?
A: Addressing the liquidity challenges is critical. It can be managed by the Reserve Bank of India (RBI) and the actions of the government. However, the big-ticket reforms are a big challenge.
Land acquisition, labour reforms or reforms in the agriculture sector present immense challenges to the government. Labour reforms in the backdrop of unemployment pose both political as well as economic challenges.
While these reforms are important, but gauging the efficacy of such reforms is a challenge and more importantly, the benefits are seen over a long-term.
Q: A lot of infrastructure stocks have rallied recently. Is it a hope-based rally after Modi 2.0 or just a bubble? What is your advise on the sector?
A: NDA governments have always focussed on capacity creation. From 1999-2004 or 2014-2019, both phases saw a significant emphasis on infrastructure creation. Also, this is one of the most efficient ministries of the government. Thus, the 2019-2024 phase should not be any different from the earlier ones.
We advise an overweight stance on the sector and continue to remain invested in the infrastructure and related plays like cement.
Q: We have not seen green shoots in consumption plays such as auto and FMCG during elections. Is it a good time to buy or it is better to wait for the June quarter?
A: The auto sector is seeing value emerging, but there are significant cost challenges arising from BSVI implementation. So, we will be a little wary of adding significant positions in the automobiles sector.
FMCG presents with a different set of challenges as valuations have risen very high and the corresponding growth has waned. FMCG will be very stock specific as the likes of HUL will still continue to perform as it has triggers coming up but most others are trading plays.
Q: Is it a time to add dividend yield stocks to portfolio instead of buying high multiple stocks like Page Industries, Eicher Motors etc?
A: Value is likely to outperform in the medium term overgrowth. High dividend paying stocks have a mixed track record as most of them tend to be PSUs with not so great capital allocation track record.
Q: Do you feel earnings are better in the second half of FY20 in light of the inventory pile-up in many industries that can hit margin?
A: Earnings should be better in the second half of FY20, but the critical factor will be the earnings trajectory of the banking sector in FY20. If the heavy weight sector shows quarter-on-quarter (QoQ) improvement then second half of FY20 will certainly be better.
Q: Some market experts believe mid-smallcaps will outperform largecaps in the next one to two years. Even historical evidence suggests that mid-smallcaps perform strongly in first 12-18 months of a new government. Do you agree and what is your take?
A. Small caps have a greater chance of outperforming both midcaps and largecaps over the next 12-24 months. We are seeing that market volatility is reducing and that bodes well for smallcap stocks.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.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.