Nirali Shah, Head of Equity Research, Samco Securities, said that the Nifty Smallcap index is trading at a premium to Nifty and valuations of the Nifty Midcap index are at par with Nifty.
In an interview to Moneycontrol’s Kshitij Anand, Shah said that as smallcap trade at a premium to Nifty, this should set alarm bells ringing for participants majorly invested in small and midcap companies. Edited excerpts:
Q) What is your view on markets as Nifty50 climbs mount 16K, finally! And, is the road bumpy or smooth for the index to touch 17000?
A) Nifty50 climbing 16000 shows resilience on the back of abundant liquidity, positive developments on the inoculation drive, and signs of economic recovery underway.
Foreign institutional investors (FIIs) have been underweight on Indian equities for 4 months and Nifty’s 16000-mark feat could bring back focus on India. The ride up will certainly be bumpy hence it should be tread with caution.
Q) Nifty hit 15000 for the first time on Feb 5, and since then it has been moving steadily. After hitting 16000 after 5-6 months --- do you think we have hit a top?
A) Predicting tops and bottoms is a futile task. Investors must rather focus on finding companies that have room for growth from a valuation perspective.
Companies that are capable of generating strong earnings growth in the future should be picked up on every dip.
Having said that, a brief correction cannot be ruled out given the run-up from 15k to 16k. But when and how soon that happens can be anybody’s guess.
Q) What is your call on small & midcaps which also hit fresh record highs today, but have outperformed benchmark indices on a YTD basis? Time to be selective in this space? What are your views?
A) A bull market brings with itself the kind of hysteria which hugely benefits small and midcap companies. Further, the Nifty Smallcap index is trading at a premium to Nifty, and valuations of the Nifty Midcap index are at par with Nifty.
And, this should set alarm bells ringing for participants majorly invested in small and midcap companies. Because with any sign of panic, the broader markets will be the first to crack.
It would be prudent to remain selective in this space and concentrate only on the quality of earnings, balance sheet,s and cashflows of companies before investing in them.
Q) Any stocks which are looking good on fundamental basis that investors can buy at current levels and why?
A) The ongoing earnings season has been an eye-opener for investors. Post the moratorium period, this results season definitely helped separate the wheat from the chaff in the lending space.
HDFC Bank seems to be a probable candidate as it has been experiencing a tectonic shift in philosophy with increasing focus towards capturing the wholesale portfolio, post a budding retail book.
Also, the institution has persistently proven its resilience across cycles. The bank has been a laggard in the bull party and hence it is a good time to invest and accumulate this bank’s shares from a longer time frame.
Q) Which are the mistakes that one should avoid as market trade near record highs?
A) Investors should not misunderstand markets to be forever linear in nature; equity markets by their very nature are non-linear.
Also, when everyone from a newbie to an experienced investor makes money in whichever stock he/she can get hold off, is when some caution should be exercised.
Aggressive investments should be done with utmost research and understanding of companies and a strategy to get out of weaker stocks as soon as opportunity knocks.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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