Trump is unpredictable; better to wait and watch as volatility is likely to persist for some time, says Kotak MF’s Shibani Sircar

Trump is unpredictable; better to wait and watch as volatility is likely to persist for some time, says Kotak MF’s Shibani Sircar

Volatility is expected to persist for some time and some of the key factors to be watched closely include US policy decisions, especially around tariffs and trade, says Kotak MF’s Shibani Sircar, while speaking to Moneycontrol on the sidelines at an event held last Friday.

She adds that corporate earnings performance for Q4 will also be a critical indicator for future direction and suggests focusing on quality over momentum -- selecting quality stocks across sectors, particularly those where valuations are reasonable, as opposed to stocks that have seen valuations run up sharply.

"We are also favouring companies where free float is large as opposed to companies with lower free float, which tend to see more exaggerated valuations," she said.

Edited Excerpts:

Q. Indian markets have been experiencing a period of heightened volatility, driven both, by global factors as well as domestic factors. What is your view on the current state of the markets? Do you still anticipate a prolonged period of volatility, especially as the markets attempt to find their footing after recent corrections?

I think near-term, there is volatility, which is because there are different factors at play for the market, both domestic as well as international. So, I think till those factors settle down, we will have to contend with some volatility. I think Donald Trump is very unpredictable — you don't know what he's going to do tomorrow — so it’s better we wait and watch.

We are doing a few things to navigate this phase: We are focusing on quality over momentum — meaning we are selecting quality stocks across sectors, particularly those where valuations are reasonable, as opposed to stocks that have seen valuations run up sharply.

We are also favouring companies where free float is large — meaning these are more liquid names, as opposed to companies with lower free float, which tend to see more exaggerated valuations. These are a few factors guiding our portfolio construction right now.

From an asset basket perspective, we are slightly overweight on large caps and slightly underweight on mid and small caps.

Large caps, we believe, are now trading at fairly reasonable valuations, so the risk-reward dynamic is more favourable there. In contrast, mid and small caps still appear expensive relative to their long-term averages, so we are being very cautious.

That said, we are taking a bottom-up approach and selectively looking at mid and small cap stocks where the businesses are fundamentally strong, and the recent correction has brought valuations to more reasonable levels.

Given that you are expecting near-term volatility, do you also anticipate further corrections in the markets over the coming months, particularly in areas where valuations still seem stretched?

Yes, we do expect volatility to persist for some time. Some of the key factors we are watching closely include US policy decisions, especially around tariffs and trade, as well as corporate earnings performance for Q4, which will be a critical indicator for future direction.

Speaking of earnings, how would you assess corporate performance in the recently concluded Q3? Did earnings meet your expectations, or did they fall short?

Q3 earnings were muted but largely in line with our expectations. To be fair, the expectations themselves were not very high. Nifty earnings growth came in at mid-single digits, but that was roughly what we had anticipated.

Currency movements also have a significant impact on markets, especially for companies with external exposures. The rupee has been under pressure in recent months — how do you view the rupee's performance and its implications for the broader economy?

On the rupee front, the silver lining is that while the currency has depreciated recently, we must remember that for a long period before that, the rupee was relatively stable and, in fact, overvalued compared to some of our emerging market peers. This recent depreciation has actually brought us more in line with other emerging markets, which helps our export competitiveness. Additionally, we still have very large forex reserves, so we have enough of a buffer when it comes to managing any further currency pressures.

Looking ahead, which sectors do you see as holding the most promise in terms of growth opportunities and resilient performance, despite the macro uncertainty?

There are a few sectors where we see a relatively positive outlook. These include private sector banks, particularly the large, well-capitalised private banks; Technology, given global demand and the sector’s relative insulation from domestic issues; Healthcare, especially domestic pharma companies and hospitals, which continue to benefit from structural demand and policy support; and Consumer discretionary should see a boost from the tax cuts that have been announced, enhancing disposable incomes and spending.