The current market dynamics have left long-term investors in a tizzy with their investments. But, there’s no cause for concern, says Harshad Chetanwala, Co-Founder of Mywealthgrowth.com.
“Instead of looking at any market level, one needs to look at the possible events that can lead to volatility in the market,” he shares in an interview with Moneycontrol. According to him, sectors like banking, metals, real estate, power and auto can see higher earnings potential.
The banking sector is expected to perform well as banks are very well capitalised and are likely to stay healthy as economic activities progress. “If inflation continues to increase in future, it will be good to invest or remain invested in large-cap banks,” says the seasoned financial services expert. Excerpts from the interview:
What is your reading on the market trends and how do you think it would look like by Diwali 2022?
The kind of recovery in the economic activities that we are seeing after a difficult year has been encouraging despite threats from the international markets like a slowdown due to supply disruption, increase in commodities prices, China’s crackdown on their technology companies, and a possible early tapering of the US Fed rates.
We see a strong pickup in the economy after the second COVID wave particularly due to a decreasing number of cases and a strong pace of vaccination. Sectors like IT and real estate, which are more labour-intensive, continue to do well and when growth in such sectors improves, there will be a trickling effect on other sectors as the overall demand improves.
Hence, long-term investors should not worry and remain invested. Instead of looking at any market level, one needs to look at possible events that can lead to volatility in the market. We may see some volatility if there is a third COVID wave or when the discussions over US Fed rate tapering start moving ahead.
Will the outperformance of Midcap and Smallcap indices continue?
Midcap companies strengthened in the last year. We see good companies and long-term opportunities within the mid-cap space. On small-cap, we would advise following a cautious approach looking at the kind of run-up in their valuations. One way to reduce this risk is by restricting the allocation in small-cap companies by investing subsequently in large-caps and keep booking profits in small-caps regularly if they continue to perform well in the near term.
While things are looking promising and investor sentiments continue to remain positive, we have to keep in mind that in case of any macro uncertainty, the impact on small-cap companies would be much higher and they may remain more volatile.
Which sectors do you think would be in the limelight by next Diwali?
Whenever economic activities pick up and the economic cycle starts doing well, cyclical sectors tend to do better as we have seen in the last few quarters. Sectors like banking, metal, real estate, power and auto can see higher earnings potential.
Assigning a level to Bank Nifty may not be easy, but the sector is expected to perform well as banks are very well capitalised at present and could continue to do so as economic activities progress. At the same time, there has been a lower-than-anticipated impact on banks as far as the NPA (non-performing assets) situation is concerned due to the overall COVID risk, this could be a positive indicator for the sector. However, if inflation continues to increase in future, it will be good to invest or remain invested in large-cap banks.
The primary market saw record fund-raising and record number of IPOs from last Diwali. Do you expect the momentum to continue?
IPOs usually come during rising markets and we have seen this trend throughout the last year. IPOs did slow down a bit in April and May 2021 as the overall sentiments and markets turned negative. We could continue to see more IPOs in the coming year as there are many unicorns and market disruptors like Flipkart, Ola, Byjus, PhonePe, OYO, Delivery, etc. that plan to get listed in the coming future.
From an investment perspective, one should have a proper strategy in place for IPOs as merely looking at listing gains may not work well in the long term. These IPOs are coming in the market cycle where there is a lot of positive investor sentiment and this can easily result in oversubscription. This results in the lower allotment and may have a marginal impact on the overall portfolio of investors. Most of these companies are raising money to grow their business in future and hence investing from a long-term mindset in the right companies is more important than just investing in all IPOs.
What are the top five events that will support market sentiment and top five risks that can spoil the rally?
Many catalysts can support or come up as risks in the present market conditions. Talking about risks first, out of all the risks, increasing inflation and interest rate can have a reasonable impact on the momentum. The increase in interest rate can impact the overall borrowing capabilities of companies, particularly in the mid-cap and small-cap space.
Also read – Paytm IPO opens: Should you subscribe? Experts offer mixed suggestions
At the same time, factors like a third COVID wave due to any new variant and concerns on overvaluation may also have some impact on the investor sentiment. From the support perspective, the economic cycle has already picked up which is resulting in growth in many sectors, the government spending and increase in job creation can help the economy to do better in future as well.
Another factor in the coming year are state elections particularly of Uttar Pradesh, it may have some impact on the sentiments depending on the results.
Between Paytm and Sapphire Foods, which IPO would you suggest?
IPO investing has become the buzzword in the last one year and many investors continue to apply for most of the IPOs as they look at it more from short-term listing gain perspective or fear of missing out (FOMO). Retail investors should follow a cautious approach particularly for IPO investing and if possible try to stay away from the noise. Some of these companies do offer unique propositions and have a strong business case in India.
Also read – KFC operator Sapphire Foods mobilises Rs 932.96 crore from anchor investors ahead of IPO
Paytm, Sapphire Foods and Latent View Analytics do enjoy a significant presence in their segments. However, one has to evaluate multiple aspects like the prospect and strengths of the business, plans of promoters after IPO, utilisation of capital and valuations of the IPO before deciding on their investment in IPO. Investors can consider some of these factors and then decide on which IPO may suit their profile and work for them in future.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
