Vinod Nair, Head of Research at Geojit Financial Services feels the current high stock prices decently factored in a good part of the economic improvement anticipated in 2021 & 2022.
In an interview with Moneycontrol’s Sunil Shankar Matkar, Nair said it makes sense to shift a part of your investments from mid & small caps to large caps by booking part of your gains.
He believes stocks and sectors which will benefit from unlocking, policy reforms and high demand from global markets will outperform.
Edited Excerpts:-
Q: Currently the markets are near record-high levels. Do you think the momentum will continue in the next one year?
The elevated prices & valuations are a concern in the short-term. A consolidation, either on time or price basis, will provide a relief to the performance of next 1 year. If the momentum continues in the same fashion, it will be a challenge to sustain the momentum going ahead.
Q: What are the sectors that could boost the returns of a portfolio by next Independence Day, and why?
Stocks and sectors which will benefit from unlocking, policy reforms and high demand from global markets will outperform. Also, value buying will be a theme in the future given premium valuations, so consider low valuation and defensive sectors like IT, FMCG, Pharma and Telecom.
Q: PM Modi said that the decision to repeal the contentious retrospective tax will lead to greater trust between the government and the Indian industry. What is your view and what would be the impact on segments that relate to this decision?
The international arbitration tribunal had ruled against India, slashed the tax rule. Nevertheless, it is a bold decision to correct the mistake of past. It has certainly added confidence in the industry and foreign investors, which were spooked. Technically the real benefit in terms of tax refund may be limited but it is a big boost to the industry and a possible fall in contingent liability.
Q: What are the major reasons that led to the sharp sell-off in midcap and small-caps? Is it because of additional surveillance measures introduced by the BSE.
Yes, the price movement curb announced by the BSE exchange was the key culprit for the sudden fall. But a clarification on Wednesday stating that this regulation is applicable only for small companies with market capitalization of less than Rs 1,000 crore has provided a big relief to mid & small caps. Apart from this, the high volatility of global market, especially selling in Asian peers added to the weak trend.
Q: The benchmark indices more than doubled from March 2020 lows and broader markets are way ahead of them in terms of returns. Do you think it is time to turn cautious or the momentum will continue?
Yes, the cautiousness is rising due to elevated price movements taking valuations to peak historical levels. The current high stock prices decently factor-in a good part of the economy improvement anticipated in 2021 & 2022. At the same time, largecaps have been more attractive than the broader markets. It makes sense to shift a part of your investments from mid & small caps to largecaps by booking part of your gains and protect your portfolio. Transform your portfolio into a balanced mix of high-quality equity, debt, and gold (maximum 10 percent).
Q: What is your reading on June quarter earnings? What did the earnings season and management commentary indicate about the next quarterly earnings and FY22?
Q1 results are good and mostly in-line with expectations. The best part is the positive management commentary on outlook. Some mixed bags are NBFCs, FMCG, Pharma and Infra. The best performers are Chemicals, Cement, Metals and Oil & Gas. Unlocking and low base is expected to benefit the full year of FY22 with high earnings growth. Nifty50 EPS is expected to grow by more than 35% in FY22.
Q: Total 38 IPOs hit Dalal Street this year 2021. More than half of them saw strong subscription and retail investors also provided strong support to majority of IPOs. Why is there so much appetite and has the appetite of new age investors increased significantly after Covid-19 pandemic crisis? Do you think new age investors are just looking for listing gains or wealth creation?
Generally, the high appetite of IPO is supported by solid performance of the stock market and the great quality of IPOs offered in 2020 & 2021. The new age investors are also attracted in the same manner supported by friendly & low-cost platforms, limited loss in employment and free time to trade & invest while work-from-home (WFH). In majority, high listing gains does instigate to book gains and trade & invest at lower prices for short-term and long-term basis.
Transform your portfolio into a balanced mix of high-quality equity, debt, and gold (maximum 10 percent).
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
