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Last Updated : Jul 26, 2019 12:02 PM IST | Source:

United Spirits, InterGlobe, Dabur, D-Mart among 4 cos that surprised D-Street in Q1

Investors would have to learn to live with this situation and retune their portfolios as long as the broader economy remains sluggish and mid/smallcaps take time to bottom out and start to rise.

In an era when the world is witnessing a paradigm shift in business models and the valuations assigned to them, a staggering investment in direct equities after sufficient due diligence may result in lowering their risks,  Deepak Jasani - Head, Retail Research at HDFC Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) What triggered this sudden market meltdown in the week gone by, which pushed the Nifty50 below 11,500 levels?

A) The immediate trigger was the negative news on the monsoon, along with auto sales and US-China trade tensions. The other negative triggers that weighed on my mind included a series of defaults/downgrades in the rating of companies, corporate governance issues at some companies, disruption in the business models due to the events over the past 2.5 years in India and opening up of the economy.

The latest Union Budget provisions that were not seen as fair to the middle class/higher class and FPIs also dampened the sentiment.

The liquidity squeeze due to the NBFC crisis, and the subsequent drying up of credit to companies with less than AAA rating have also impacted business volumes.

Q) After the Finance Ministers' comments on a tax surcharge on the super rich, do you think it could result in fierce selling by FIIs in the weeks to come?

A) Though the reaffirmation of the applicability of surcharge on FPIs is negative from a sentiments perspective, FPIs would typically weigh their investments in the Indian market based on dollar returns they are expecting to make here post-tax.

In case they feel that the possibility of the return is large, then they would be willing to bear this additional surcharge; however, in case this is not so then even if tax rates are cut, they would not continue with their investments in India.

In an environment where the recovery of corporate earnings keeps getting postponed, this negative may spur some FPIs to press the exit button. A strong rupee and soft interest rates globally are helping to postpone this event.

Q) Any big surprises or disappointments you have spotted from India Inc. so far in the earnings season?

A)  Disappointments:

IT services: Especially in the midcap IT space, a lot of companies reported poor topline and worse bottom-line growth due to a slowdown in spends by customers, and weaker-than-expected recovery in key verticals such as BFSI, aerospace, telecom, defence, and communications.

BFSI: Slippages or deterioration in the asset quality was higher than expected especially in the private banks' space and the outlook also suggest caution going ahead.

Fertilisers: Coromandel reported poor numbers on account of late monsoon arrival, deficit rains and consequent lower crop sowings delayed the agri-input consumption in its addressable markets.


Liquor: United Spirits came out with results that beat expectations by a large margin.  Faster growth in "prestige and above" brands helped offset the election impact.

Aviation: InterGlobe Aviation reported great numbers aided by addition to the fleet, yield improvement, and cost control.

FMCG: Dabur India reported good numbers in an environment when consumer spending is slowing rapidly. Volume growth of 9.6 percent in the domestic market and improved overseas business helped offset the slowdown impact locally.

Retail: Avenue Supermarts reported healthy numbers aided by high store addition, higher revenue and an expansion in its gross margins.

Q) Nifty could well be trading around record highs, but there is a mismatch as to what is happening in terms of valuations and also the economic fundamentals. Is that a scary situation for investors?

A) The Nifty value is impacted by 5-7 large heavyweights which have not disappointed in terms of their recent results in a big way so far. Financials (with a weight of 40.4 percent), IT services (13.7 percent), Consumer Goods (10.7 percent) and Energy (14.4 percent) have not let down majorly.

The disruption in business models has resulted in bigger players doing even better. This has resulted in a large difference between earnings growth and valuation of these companies and the vast majority of the second rung and below companies.

Investors would have to learn to live with this situation and retune their portfolios as long as the broader economy remains sluggish and mid/smallcaps take time to bottom out and start to rise.

Q) Legends have said that long term investors should buy when there is ‘fear’. In other words, is it time to buy stocks for a long term portfolio say with a time horizon of 3-4 years?

A) Although market gurus have time and again said that the best time to buy is when there is fear on the street, it is a difficult strategy to implement. The feeling of fear will not indicate whether the worst is over or whether more fear is in store.

Investors have to become choosy about governance and capital allocation decisions made by the companies’ managements. Many smallcap and midcap companies may fail the test of survival in an era of constant disruption – be it owing to regulations or technology.

Retail investors should learn from market moves, and may also want to upskill themselves by learning the ways of the market, and individual stocks’ financials/valuations.

In an era when the world is witnessing a paradigm shift in business models and the valuations assigned to them, a staggered investment in direct equities after sufficient due diligence may result in lowering their risks.

Investors need to look out for quality mid-cap stocks with earnings visibility, superior management, and low operating margin variability.

Select Mid-and-small-cap companies will keep throwing up surprises in stock moves, based on their small size/base, faster adjustment to emerging changes, financial and operational restructuring, corporate announcements including mergers, demergers, hive-offs, turnaround, asset value unlocking, etc.

Q) People are losing money in markets. One of the top fund managers in a letter to investors wrote that he got it wrong. And, that is investors’ money we are talking about. Most of the funds have not given returns as one would have liked. How should investors’ structure their portfolio or what should be their strategy?

A) Despite whatever investment Gurus may tell (even they are now churning their portfolio more often), in the long term nobody knows how will your investee companies will perform.

Hence, periodic review of investments  (especially from the perspective whether the positives are adequately discounted in the current valuations), re-balancing between asset classes and within asset classes, some minimum allocation towards Gold and government debt are a few things that an investor can try to follow/implement.

Q) How long can the HRITHIK stocks take the market higher? After some points, these too will fail as most of them are already trading at high valuations (TINA factors playing out, maybe). Unless the broader market starts to perform do you think we are unlikely to break out into unchartered territory?

A)  HRITHIK (HDFC, Reliance Industries, Infosys, Tata Consultancy Services, Hindustan Unilever, IndusInd Bank, Kotak Mahindra Bank) stocks can perform contrary to the broader market for quite a long time although these will also undergo correction due to relative valuation concerns or profit booking or re-weighting of portfolios.

The rally in these stocks enabled Nifty to break into new high in early June 2019. However, now it may be difficult for the Nifty to make another high till a wider section of the top 100-150 stock starts to perform; of course one would wish for even the small and midcap stocks to start performing.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Jul 26, 2019 12:01 pm
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