It’s time to review and recast the portfolio with a balanced mix of defensives, debt, cash and stocks in upcoming sectors, says Vinod Nair, Head of Research at Geojit Financial Services, suggesting caution to avoid any major setback in an unpredictable and over-appreciated market.
“We can expect further correction in the near-term,” he says. “The possibility of any big correction is low, though. So, I would not advise complete profit-booking at this juncture. Buy-at-dip will be a good strategy,” he shares with Moneycontrol.
Excerpts from the interview:
Do you think that the Nifty can break 17,000 in the November series? Also, will the broader markets see more correction than benchmarks?
At least in the near-term, the possibility to break below 17,000 is low, however, a lot will depend on the Federal Reserve medium-term stance on QE (quantitative easing). The Fed meeting outcome is not expected to be very hawkish, rather it would marginally reduce the bond-buying plan. The broader market will be highly impacted than the main indices. The current sell-off is triggered by high valuation and inflation, the extent of which is initiated by high FII selling.
Would you advise the investor to be more cautious and rush for whatever profit has been earned?
We have been suggesting caution for some time due to the over-appreciation and have been advising to transform your portfolio into a balanced mix of defensives, debt, cash, and upcoming sectors. The Nifty50 has corrected by 1,000 points, or about 5 percent, and for the mid and small cap, it will be about 10 percent in average. We can expect some more correction in the near-term, however, the possibility of any big correction is low. So, complete profit-booking at this juncture is not advised. Buy-at-dip will be a good strategy.
What is your reading from the September quarter earnings announced so far? What are your top picks at the moment?
The results are mixed and marginally below the market expectation. Impact is from stagflation and supply constraints on those stocks and sectors which depend on raw material as key inputs like metals, food grains, chemicals, and logistics. It is leading to margins affect and downgrades in earnings outlook. This is against the street view as it was not anticipating such a heavy effect. Banks and IT have done well. Large-cap stocks such as Titan Company, L&T, ICICI Bank, Axis Bank, HDFC Bank, Kotak Mahindra Bank, Infosys and Reliance Industries have done well.
What is your top pick among the five IPOs lined up before Diwali?
We are positive on digitally native consumer technology platform Nykaa, focussed on beauty, personal care and lifestyle products, given its strong growth (revenue CAGR of 48 percent and EBITDA CAGR of 181 percent), brand value, own proprietary platform, strong repeating customer share (contributes 70 percent to gross sales in FY21), rise in average order value, good promoter background, and promising industry outlook.
SJS Enterprises is a leading player in the decorative aesthetics industry with a wide portfolio of premium products. It has a unique design and manufacturing capabilities with stable revenue growth and consistent margin of around 30 percent, zero debt, qualify for higher valuation.
If the correction continues for some more days, do you think the primary market will be hit and companies would delay their IPO plans?
The ongoing IPO offers are expected to conclude well because of high demand. However, the current muted trend will impact their listing gains. And if this weak trend continues for some more time, it will also impact the future IPO plans.
What are the sectors to watch out for in November?
Banks are expected to do well due to improvement in asset quality. Tourism and logistics should also be considered with strong volume growth led by pent-up demand. Defensives like IT, pharma, FMCG and telecom will also be in favour during a weak market. Companies focusing on electric vehicles (EV) and renewables energy is also attractive on a long-term basis.
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