Ashutosh Tiwari, who has over 10 years of experience in capital markets under his belt, is of the view that one needs to get selective in picking up stocks as many companies are now trading at unreasonable valuations.
Tiwari who is a Head of Research at Equirus Securities said that he remains positive on small & midcaps and expects the rally to continue but one needs to pick based on cash flow and valuations, in an interview with Moneycontrol’s Kshitij Anand.
Q) Market hit fresh record highs amid strong retail push and abundant liquidity with domestic institutions. What is your call on market – and how long do you think the music will last?
A) We are going to see a cyclical CAPEX recovery after a long period, in the last capex cycle of 2003-2009, three sectors were major drivers – Metal, power, and Real Estate.
Power is unlikely to see that kind of CAPEX as now major investments are happening in renewable energy rather than big bang thermal power plants.
However, with a sharp increase in metal prices, there will be massive deleveraging of the balance sheet and we will start seeing major capex recovery in the sector.
The Real Estate sector has also seen a good recovery post-COVID and land prices have gone up in many pockets, therefore we expect a recovery in real estate sector after almost 10 years.
Capex is also expected to see a boost from the government PLI scheme. As CAPEX recovery leads to higher job creation as well at lower strata of society, we expect the overall economy to do well over the next 3-5 years and hence are positive on the market.
While we can’t deny 6-8% correction in the broader market, those will be buying opportunities.
Q) Your take on the outcome of the RBI meeting. How long RBI will be able to maintain rates? And if rates are increased do you think it will lead to risk-off sentiment?
A) With a sharp rise in commodity prices, inflation is inching up, therefore while RBI kept rates unchanged, at some point in the next year, it will have to reverse the stance.
However, with our expectation of cyclical recovery in CAPEX and also considering deleveraging of balance sheets across sectors, we are not too worried by a small increase in interest rates.
Q) Small & midcaps outperformed Nifty50 so far in 2021 and hit fresh highs in August. How should investors play this theme? Time to turn cautious, or the momentum will continue?
A) One needs to get selective in picking up stocks as many companies are now trading at unreasonable valuations.
However, there are still good cash flow generating companies available at decent valuations. We remain positive on small & midcaps and expect rally to continue but one needs to pick based on cash flow and valuations.
Q) What is your take on the telecom pack especially the developments around Vodafone? What should investors do?
A) Maximum negative impact of Vodafone Idea bankruptcy will be born by government and therefore the government should try to save it. However, any weakness in Vodafone will be gained for the other two players and we might see ARPU increase going ahead.
Q) What is your view on MF data for July — where is the smart money moving?
A) SIP flows remain strong as with low-interest rate scenarios and people making good money in markets over last one year, faith in equity markets have increased among the general public.
Investors have also become smarter in terms of comparing the performance of different funds and therefore funds generating better returns are seeing higher inflows
Q) Where do you think there are opportunities for alpha generation?
A) Cyclical sectors like Metals, Industrials, autos, real estate are likely to provide better returns going ahead.
Q) August was awash with IPOs? Most of the IPOs got fully subscribed at least the retail portion on Day 1. Does this mean that the appetite of new-age retail investors have multiplied especially in the last 12 months or so. Is it for listing gains or long-term wealth creation?
A) With IPOs giving good listing gains, retail investors are looking for quick returns, however one has to be selective in IPOs as information available for an IPO company is generally lower than companies listed for a long time.
Q) What are your views on June quarter results season so far? Do you think this time we have seen more downgrades compared to the March quarter?
A) 1Q was a quarter badly impacted by COVID 2nd wave and therefore we can’t draw too much inference from the quarter results as companies also witnessed margin impact due to operating deleverage. While FY22 earnings might see a cut due to weak 1Q, we don’t see a major impact on FY23 earnings.
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