The market has priced in the formation of a stable government with no party crossing the halfway mark on its own. In such a scenario, Nifty should end the year in the range of 13,000-15,000, Rajiv Singh, CEO at Karvy Stock Broking, said in an interview with Moneycontrol’s Kshitij Anand.
Q: How do you see D-Street reaction in different political scenarios after May 23?
A: The market has priced in the formation of a stable government with no party crossing the halfway mark on its own. We believe that the probability of this event is high.
In such a scenario, though some profit booking is likely, equity markets should do well over the course of the year and Nifty should end the year in the range of 13,000-15,000.
If any single party crossed the halfway mark, there would be a significant rally, but on the flip side, if an unstable coalition assumes power, Nifty could decline towards 9,000.
Q: What are your views on March quarter earnings?
A: March quarter earnings have been more or less in-line. The messages from the earnings are: 1) consumer demand slowdown has impacted top line growth, 2) margins continue to get impacted by commodity prices.
Banks have been the area of strength as the credit quality of banks has improved. Consumer sectors such as autos disappointed, pointing towards a slowdown in consumption.
One company that did well was TVS Motor that bucked the slowdown in the industry, reporting revenue growth of 9.4 percent YoY and 2 percent volume growth.
Q: Mutual Funds data suggest that flows plunged by 64% in April to the lowest in 31 months. Is this temporary blip or do you think we could see more weakness?
A: The decline in inflows is because of two reasons 1) Investors have been in wait and watch mode due to political uncertainty, and 2) Rising volatility in financial markets has been a dampener.
India VIX is currently around 27, whereas in March it hovered around 15-17. If election results do turn out as expected (formation of a stable government), investors' willingness to take on risk should rise, and inflows to risky assets like equity oriented funds could recover.
Q: Which sectors are likely to hog limelight post elections?
A: We believe that the Indian economy should recover by Q2FY20, largely on the back of an increase in capex spending. Formation of a stable government should rekindle risk-taking, benefiting cyclical sectors. Financial services especially banking, capital goods, autos and IT should do well.
Q: If a person in 30s wants to invest Rs 10 lakh ahead of May 23 – what should be the portfolio allocation in terms of sectors in equity markets?
A: Sectors such as financial services especially banking, capital goods, autos and IT constitute about 60 percent of the equity market, and we would invest 75 percent of our equity allocation in these sectors.
We would be underweight on FMCG, communication services, utilities and oil & gas. We are neutral on materials and healthcare. One can buy equities directly or buy sector-specific mutual funds.
Q: There are signs of a slowdown in the market. Have we entered the first phase of a bear market?
A: India is facing a cyclical slowdown, largely on account of low liquidity in the money markets. India has faced an unexpected slowdown in consumer demand leading to an inventory build-up.
An inventory correction, which we believe is under progress can exaggerate the extent of the slowdown in final demand. Lastly, a slowdown in the global economy, as well as trade wars have taken a toll. RBI is working to enhance liquidity and there are signs of a pickup in the global economy.
Q: Q4 results have failed to surprise analysts. There are more stocks that have hit 52-week low than highs. Is it time to go for the kill and deploy cash in case you are an investor for five years or more?
A: For any investor who has a horizon of five years or longer, this is a good time to invest in equities. Growth in the Indian economy has been held back on account of NPLs, reforms like GST and RERA have also held back growth in the short term, but will aid growth. Indian economy is facing cyclical headwinds, which has soured sentiment.
Q: Do you think that there is more pain in store for those who invested in mid and smallcaps?
A: Mid and smallcap stocks tend to outperform when two conditions are met, firstly markets should be in a risk on mode, which should be the case after May 23.
Secondly, valuations should be favourable. In 2018, mid and smallcaps were trading at a significant premium to largecaps, leading to their underperformance.
Currently, they are at a small discount. Thus, the conditions for them to outperform largecaps are falling in place and we would invest in midcaps.Disclaimer
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