Naveen Kulkarni, Chief Investment Officer, Axis Securities feels the market will continue its upward journey but it’s likely to be a little more measured.
Especially even after stellar run in equities, he said, exposure to equities should not be reduced but focus should be on quality themes. Rebalancing portfolio with sectors that bring down the risk can be considered.
The market has delivered healthy returns since the month of August, gaining 10 percent, but the broader markets outpaced frontliners with the BSE Midcap index rising 5.6 percent and Smallcap index up 2 percent.
Kulkarni has over 10 years of experience in the capital market.
He believes there are interesting plays in life insurance space or private banking which can generate solid compounding long-term returns which can adhere to the value investing principles of Warren Buffett.
Edited Excerpts:-
Q: Looking at the consistent rally to new record high levels, the market seems unstoppable. Do you think it is the time to turn cautious? Can the Sensex hit 60,000 milestone by the end of 2021?
We believe that the market has turned cautious in the last one month. While the headline numbers indicate that the market continues to climb but the small index corrected by 3 percent in the last one month. The market breadth was clearly narrower and the benchmark Nifty50 outperformed the other broader indices by a significant margin. The market has focussed on quality stocks and correction in non-quality stocks has been quite significant. So, it seems more likely that the market returns will be a little more calibrated but there are good themes in the market, earnings momentum continues and flows remain strong. Thus, it is more likely that the market will continue its upward journey but it’s likely to be a little more measured.
Q: FMCG sector gained momentum and recorded more than 7 percent rally in the month of August. What is the reason behind such strong buying and will that be sustainable going forward? Should investors continue holding these stocks?
FMCG has underperformed the market by a very large margin in the last 12 months. Thus, some catch up rally was expected. Also, as the market has seen a shift towards quality, FMCG stocks have seen increasing allocation as they have strong and consistent earnings growth trajectory. Investors should continue to hold FMCG stocks as they provide good compounding long-term returns.
Q: What are those sectors where value investing principle of Warren Buffett can be applied now and why?
Value investing was very much in vogue in the last year and the theme performed very well. However, the Warren Buffett principles are difficult to apply in the current context as names that Buffett would have picked are reasonably expensive now. Still, there are interesting plays in life insurance space or private banking which can generate solid compounding long-term returns which can adhere to the value investing principles.
Q: Listings in August – Nuvoco Vistas, CarTrade Tech, Windlas Biotech, Chemplast Sanmar and Aptus Value Housing Finance – disappointed investors and spoiled the mood of primary market. Do you think it will impact upcoming IPOs and their subscription? Also do you feel the valuation is a big concern for these IPOs?
It was very clear that there was a degree of irrational exuberance in the IPO market. This resulted in overheating of the IPO market. Thus, some cooling off is likely but quality IPOs in the future will continue to attract investors.
Q: Considering the stellar rally in the equity market, do you think it is the time to reduce exposure to equity in a portfolio or rebalance the portfolio?
Equity is still the best asset class for returns. The fixed income market has very low yields while the gold trends have been mixed. Thus, exposure to equities should not be reduced but focussing on quality themes and rebalancing with equity sectors to bring down the portfolio risk can be considered.
Q: What are investment mantras one should follow before doing stock selection for a portfolio?
Some of key factors to be considered are:
Industry growth
Company position in the industry
Promoter background and fund raising history of the promoter
Balance sheet strength and Return on equity
Earnings variability
If one is able to assess these factors well enough, then the chances for spotting a winner is very high.
Q: Do you think expected Fed tapering will have less impact on the domestic market going forward given the forex reserve India has?
It seems more likely that Fed tapering will have a lesser impact as the markets have faced this challenge before and have adapted also. So, this is not a new challenge and coping mechanisms are known. Thus, the impact of Fed tapering will be less impactful but needless to say there will be some impact.
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