While, FPIs sold Rs 11,037 crore of equity in February, they remained net buyer to the tune of Rs 8,440 crore till March 26, 2018. We think that further increase in yield and possibilities of escalating trade war can weighed on FPI’s sentiments and check their investment in domestic equity, Sumeet Bagadia of choiceindia.com said in an exclusive interview with Moneycontrol's Sunil Shankar Matkar.
What are the biggest risks for the market on the domestic and global fronts for the next one year?
A) As per our view, US policy on trade, domestic political uncertainty, increasing yield in economy and resolution of PSU banks to be the biggest risks for market over the next one year.
How are FIIs positioned in the market? Do you think the Fed rate hike and fears of trade war could push them to change their stance towards Indian markets? Also, do you see the trade war impact getting over now for Indian market?
US has increased import duty on steel and aluminum which is likely to put less impact on India given the low exports of these metals. However, if the trade war escalates to others items such as medicines and chemicals, it would impact India adversely going forward.
While, FPIs sold Rs 11,037 crore of equity in February, they remained net buyer to the tune of Rs 8,440 crore till March 26, 2018. We think that further increase in yield and possibilities of escalating trade war can weighed on FPI’s sentiments and check their investment in domestic equity.
Globally, central banks are hinting at hardening of interest rates. Do you expect the RBI to go for interest rate hike in the current or next year?
Ans) Govt 10Y bond yield is current hovering at around 7.56 percent which is 156 bps higher to repo rate, way higher than historical average gap of 50-75 bps and thus it warrants a hike of around 50-75 bps increase in the repo rate.
What are your earnings expectation for Q4 and FY19? Do you think second half FY18 earnings performance will be the base for improvement in FY19 earnings?
Nifty 50 companies may clock 18-20 percent percent earnings growth in the next financial year. Improving manufacturing sector performance after the disturbance created by GST and Demonetization, gradually reviving investment cycle and overall improvement in rural and urban areas will drive the sales growth of the companies.
Midcaps and smallcaps corrected steeply in the recent fall after a 50 percent rally last year. Are they now at levels that can be bought for long term or is there still room for correction?
Despite the sharp correction, small and mid cap stocks are still above their fair valuation. We recommend a stock specific strategy in this segment, further the sharp correction in this segment has also brought down some fundamental strong stocks and thus they have reached at attractive valuation. Investors can invest in fundamentally strong stocks available at attractive valuation for mid to long term prospective.
The market has been rangebound after correcting 10 percent from record highs, Do you believe it is oversold or is more correction on the cards? Have you changed your year-end outlook due to volatility since February? What is your overall outlook?
Recently, the Nifty has given a ladder type correction along with all heavy counters and sentiment has changed to negative because of the ongoing war on trade and banking fraud which has shaken the PSU Banking. Moreover, technically as well the Nifty look weak as on a monthly chart, the Index has formed a Bearish Engulfing candlestick which suggests an upper hand of the Bear over the Bulls and we had witnessed a Heavy correction whenever this type of structure took place on the chart in past.
Since RSI is trending near to its oversold zone, we are not seeing any further correction for the time being and it suggests a bounce back move in the Index. However, the overall trend is weak as the Nifty has been trading with a negative crossover of 21*50 Days Moving Averages, so any upside movement in the Index would become the best-selling opportunity for short to medium term.
If we talk about all the Technical indication, then we will get an answer for sell-side movement. As the Quarterly chart is forming a Shooting star candlestick and which might get confirm as we are heading towards the quarter end.
Moreover, a Monthly chart has witnessed a Bearish Engulfing candlestick along with a Negative divergence on a Monthly RSI. Furthermore, a 21 Weeks Moving Average is also shouting for the bearish move as the Nifty has breached its most devoted moving averages which helped out a lot during the weak time of Market. Even on a daily chart, the Index has given a breakout of its so-called Great Wall of China and has been trading below it which confirms the medium term southward trend.
What do you suggest to investors - buy on dips or sell on rally?
So with the ongoing movement on all the time frame, it is advisable to go for Sell on Rise strategy for medium term as we are looking for a downside movement up to the level of 9600-9450. However, for a long-term perspective, we are maintaining our target of 11415-11985, and its good time to get into the market with few selective counters.
What are the five sectors or themes that you think will do well in the medium to long term? What are your top five picks that you believe can give healthy returns to investors over 2-3 years?
A) We are positive on sectors such as private banks, selected NBFCs, infrastructure and selected IT players. Our top five picks are 1) IndusInd Bank 2) Dilip Buildcon 3) UPL Ltd. 4) Hero MotoCorp and 5) HCL Technologies
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