Gaurav Dua, Head Capital Market Strategy at Sharekhan by BNP Paribas, believes it would not be a surprise if the benchmark indices correct by 5-8 percent since the markets have to deal with the unwinding of a highly accommodative monetary policy both in the US as well in India.
A correction would be healthy for the markets and should be used to accumulate quality companies, says the man with over two decades of experience in research.
The benchmark indices rallied more than 140 percent from March 2020 lows and more than 50 percent in the last one year. At Sharekhan, the experts believe that this is a multi-year rally in equities with scope for handsome returns in the medium to long term.
“About Sensex touching 2,00,000 mark in this decade, we believe it is not an unachievable task,” says Dua at an interaction with Moneycontrol. Excerpts from the interview:
What are the global and domestic risks that one needs to consider while investing in the equity market at this moment?
Equity markets have an inherent risk of high volatility and the short-term price movements are highly susceptible to macroeconomic, geopolitical and others developments. In the near term, the markets have to deal with expected volatility resulting from unwinding of highly accommodative monetary policy, rising energy and commodity prices and the debt crisis in China. But most of these risks are known risks rather than unknown risks that tend to have relatively more intense impact on the markets. Normally, the markets adjust to known events faster.
Most of sectors participated in the current bull run, giving double-treble-digit returns in the last 18 months. What are those key sectors that will led the next rally from the current levels and why?
Going ahead, we see value in the auto sector and public sector banks. Both these spaces have underperformed and trading at a reasonable valuation. On the other hand, the headwinds are likely to ease and the growth trend is likely to improve going ahead.
What about market corrections? Do you think the rally will continue? Do you think the Sensex will reach 200,000 mark before 2030?
It has been a very strong rally in India. The Sensex has surged by 10,000 points from 50,000 to 60,000 mark in only 158 days, while the Nifty has hit a new high in 48 days in the current year. Thus, it would not be surprising if the benchmark indices correct by 5 percent to 8 percent especially since markets would have to deal with the beginning of the unwinding of highly accommodative monetary policy in US as well in India.
However, the correction would be healthy for the markets and should be used to accumulate quality companies. The Indian economy and corporate profits are set to grow at a very healthy rate and we believe that this is a multi-year rally in equities with scope for handsome returns in the medium to long term. Our base case prognosis is that the benchmark indices could slip into a consolidation range and could see time correction in the immediate term.
About Sensex touching 200,000 mark in this decade, we believe it is not an unachievable task. The move from 60,000 to 200,000 mark can be achieved with returns of 12.5-13 percent CAGR over the next decade. This is in line (or even lower) with the expected nominal growth in the economy and the benchmark indices tend to outperform nominal growth in the economy over the medium to long term.
Is it time to add solar energy stocks in a portfolio and why?
Renewable energy and green fuel are likely to meet bulk of the world’s energy needs in future. So there is a long runway for growth in this space and many large Indian conglomerates have aggressive growth plans accordingly.
However, one needs to be selective here as like in any sector certain select companies would capture a large part of the market. Within midcap/smallcap, the suppliers and ancillary companies also offer interesting investment opportunity.
Realty stocks saw healthy run-up in the last several weeks on expectations of strong festive demand and low interest-rate environment. Should one still buy realty stocks and keep in portfolio?
After a long time, the macro environment is quite supportive for a multi-year growth in the real estate sector. In the past few years, the sector has gone through consolidation with weaker players exiting the business. The mortgage rates are at all-time low and the affordability index is at attractive level. Thus, we believe that real estate should be part of any investment portfolio.
SIP inflow in September was at a record high, crossing Rs 10,000 crore on a monthly basis. Do you expect it to firm up further?
Retail investors have been increasing their allocation to equities due to limited opportunity in other asset classes, especially fixed income instruments like bank term deposits. And rightly, a large part of retail inflows are coming into the market through SIP, given the apprehension of a correction after an unrelenting rally in equities. We expect SIP flows to remain strong in the near term.
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