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Last Updated : Nov 27, 2019 01:38 PM IST | Source: Moneycontrol.com

Smart money | Chase stocks that show growth irrespective of long, mid or small-caps

Equity markets are volatile by nature and hence, one should invest in equities for long term to benefit from the power of compounding, says Pankaj Bobade of Axis Securities Ltd.

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General investors cannot time the markets and we hence suggest looking at the markets from a long-term investment horizon and investing in a staggered manner, Pankaj Bobade, Head of Fundamental Research, Axis Securities tells Moneycontrol's Kshitij Anand in an interview.

Q. What is your assessment of the September quarter earnings season? If you had to describe it in one word –what would that be? And, what were the highlights?

A. The Q2FY20 results season has been a ‘mixed bag’. Given the slowdown in economic growth, one should see the results season sector by sector.The volumes in the FMCG sector were slightly better than expected especially on the back of the high base and the pain in the rural segment.Discretionary consumption plays were a mixed bag with paints and quick service restaurants (QSR) segment reporting better than expected growth. Though the near-term consumer demand is likely to be subdued, improving monsoon offers a ray of hope to invigorate demand in the latter half of the year. Managements have been cautiously optimistic over the rest of the year.Corporate banks such as ICICI Bank, along with retail-focused banks viz., Kotak Mahindra Bank, HDFC Bank, as well as IndusInd Bank, etc. and non-banking financial companies (NBFCs) such as Bajaj Finance displayed improved asset quality and reported excellent growth in its bottom-line and loan advances.

Quarterly results have indicated that slippages are contained, asset quality improved, loan advances are improving. If a final decision on the pending National Company Law Tribunal (NCLT) cases is taken, the profitability of these banks would witness a big jump.

Large IT companies viz., Infosys and HCL Technologies reported stellar growth and few of them have also increased their guidance. The deal wins are happening and companies are winning large clients across sectors.


Going forward, the margin pressure could be felt as the onsite expenses and subcontracting cost increase.

The performance of the Auto sector has been in line with expectations given the NBFC crisis and tepid volumes; the volumes numbers have improved month-on-month (MoM) for the past two months but it needs to be seen if the momentum continues in the post-festive season.

Q. Fund managers increased stake in insurance and Asset Management Companies (AMC) such as ICICI Lombard, HDFC AMC, and HDFC Life Insurance in the large-cap space in October. In the mid-cap space, New India Assurance got attention. Can these be the next Sensex stocks investors can look at?

A. India’s macro dynamics with huge under-penetration coupled with momentum towards financialisation of savings offer vast growth potential for the listed players in the insurance/AMC sectors. Migration of household savings from physical assets like real estate/gold and traditional bank deposits to mutual funds is also beneficial for the sector.

Unlike NBFCs or banks, the insurance/AMC sector does not have non-performing assets (NPAs), liquidity or solvency issues. Almost all insurers are well-capitalised with reasonably comfortable solvency ratios.

Insurance and Asset Management could be portrayed as the next sunrise sectors of the Indian economy, hence index inclusion was a given. At the same time, investors should be selective in these sectors focusing on well-managed businesses with consistent performance.

Q. The macro data is far from rosy, in fact, it is getting worse by the quarter. At the same time, benchmark indices are trading near record highs. Is it time to act on Warren Buffett's advice and buy the ‘fear’ because small & midcaps are down 20 percent from respective record highs?

A. The recent spate of weaker macro-economic data is concerning. The Q2FY20 GDP data is expected to surprise on the downside. All eyes in the near-term are on the Reserve Bank of India's (RBI) bi-monthly monetary policy committee (MPC) meet and whether it looks through the recent spike seen in consumer price index (CPI) inflation and continues with its accommodative stance; any cautious remark would be seen negatively by the equity markets.

The equity markets have been trading near their all-time highs. The S&P BSE Sensex and Nifty stocks are on the euphoric run on account of the corporate tax cuts announced and expected measures by the government to revive demand given the current state of a slowing economy.

The money is chasing stocks that have delivered on growth irrespective of them being large caps or mid/small caps.

We think general investors cannot time the markets and hence suggest that they look at the markets from a long-term investment horizon and invest in a staggered manner.

Q. Gold is volatile recently thanks to mixed signals from the trade war front and rupee depreciation? What are your views on the yellow metal and should I make use of corrections and buy?

A. Gold plays an important role in an investor’s portfolio. It is insurance for the uncertainties, and investors should buy gold to diversify risk.

Currently, the global financial world is going through a variety of uncertainties viz., the US-China trade talks, Brexit, dis-inflation in various countries, and unrest in countries such as Chile, Hong Kong, and the Middle-East.

Hence, to de-risk one’s portfolio, an investor should have a certain portion dedicated to gold and this should be different from the gold purchased for consumption (jewellery). One should buy this gold possibly in electronic format, say Gold exchange-traded fund (ETF)  or Gold Sovereign bonds.

Q. From your decades of experience, how can investors balance emotions and remain invested in testing times such as we saw in 2019?

A. Equity markets are volatile by nature and hence, one should invest in equities for the long term to benefit from the power of compounding.

Compounding means that the return earned on the investment is reinvested to add to the initial capital, thus increasing your capital for the next compounding period.

Time-horizon of investment plays a significant role in compounding; the longer you stay invested, the higher the benefit of compounding.

Two essential elements make compounding work: first is to give ample time for investments to build, and the second is to have the discipline to remain invested. The amount invested is less important than the time allowed for investments to grow.

If properly invested after due diligence about the target investing company, the investor can make substantial returns in equity markets over the long term.

An investor has to balance his emotions and instead of getting carried over by the market forces, stay put in the investment and lower the cost of acquisition in the target company/stock whenever opportunities are made available by the market.


Disclaimer: The views and investment tips expressed by investment experts 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.

First Published on Nov 27, 2019 01:38 pm