Divam Sharma, cofounder of Green Portfolio, a portfolio management company and research house, likes the Paytm and Nykaa IPOs. He said they make a good addition to investment portfolios because they will continue to lead and disrupt their respective spaces.
Key stock market indices have declined more than 5 percent from their recent record highs. This is already affecting the primary markets, Sharma, who has over 15 years of experience in investment management, told Moneycontrol in an interview. The grey market premium, as quoted by online websites, has fallen to a large extent and many companies may delay their IPOs if the downward trend persists, he said. Edited excerpts:
Q: Is there a possibility that the Nifty can break below 17,000 in November series? Also, will the broader markets see more correction than the benchmarks? Do you think the Morgan Stanley downgrade is the trigger for the selloff and will the Federal Reserve policy meeting add more pressure?
Nifty has seen a huge rally for the last few months. We foresee this as a healthy correction for the markets. Despite growth in revenues and profit after tax for many companies, the pressure on margins is visible in Q2 earnings. The broader market will see more correction than the index stocks. This dip will be a big opportunity for capital that has been waiting on the side-lines in anticipation of a correction.
Despite pointing towards the 24 times forward PE multiples, Morgan Stanley research has predicted a strong earnings growth outlook of over 20 percent compounding for the next 3-4 years, which will help India enter a new profit cycle.
We believe that India is a major large economy, which will continue to gain inflows from large foreign institutions. India has been commanding a premium valuation over a long period now and will continue to command a premium over emerging market peers. The infrastructure push, production-linked incentive (PLI) developments, supportive government policies and high global growth will continue to support the markets in the coming years.
Q: Do you think it is time to turn cautious and book profit earned so far?
We are seeing many high-quality stocks falling even 10-20 percent in this market. This is a good time to re-allocate capital to stocks in the broader markets, which are now available at attractive valuations.
We believe in continuously following the discipline of booking profit in stocks that have run up unsustainable valuation levels. Exiting capital and sitting on cash should not be the right strategy in this market – rather, staggered fresh allocations should be considered.
Q: What’s your reading on September quarter earnings so far and what are the stocks to pick after earnings?
We have seen some great sets of numbers from companies in sectors including power, financials, capital goods, IT and commodities. There has been a huge jump in revenues and PAT numbers. However, there is some visible pressure on margins.
Margins will continue to be subdued as there will be continuous inflationary pressure in the coming quarters. We like Meghmani Finechem and The Anup Engineering, considering the recent set of numbers.
Q: What is your top pick in the current IPO line-up and why?
These are just the initial days when we are seeing disruptive new-age companies getting listed. We like Paytm and Nykaa at the IPO price band. These companies will be a good addition to investor portfolios as they will continue to lead and disrupt their respective spaces in the coming years.
Q: If the correction continues for some more days, do you think the primary market will also get impacted and companies could delay their IPO plans?
The recent correction is already impacting the primary markets. We are seeing a fall in transactions and prices in the unlisted market. The grey market premium, as quoted by online websites, has fallen to a large extent. Companies like Paytm (One 97 Communications) have fixed a lower price band considering trends from their pre-IPO placement. Many companies might delay their IPOs if this correction persists.
Q: What are the sectors to watch for in November, especially after recent correction, and why?
We continue to like the chemicals and pharma sector and believe that these sectors will continue to grow under the China-plus-one and PLI developments in the coming years. The valuations of many companies in these sectors look attractive.
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