Divam Sharma is the Founder of Green Portfolio
Divam Sharma, founder at Green Portfolio believes the Indian market will go through a consolidation phase before moving a leg higher. But another correction of 10 percent is not on the cards considering most risk factors and negative sentiments are priced in, he says.
Divam Sharma, who has more than 15 years of experience of investment management in stock markets, says now is not the time to look at consumer discretionary stocks as the increase in raw material prices, interest rates will lead to a pinch on margins of these companies.
Edited excerpts:
Given the signs of progress in Ukraine-Russia peace talks and hope that the war could end soon, do you think sanctions imposed on Russia could get lifted?
It is rather quicker to sanction a country than to repel them of the same. We have witnessed this throughout history – may it be with Venezuela, Iran, or North Korea. Hence, the ultimate lifting of these sanctions will prolong. However, the decoupling of western economies from Russia will be an enduring phenomenon.
The market recovered quite sharply and gained 9-odd percent from recent lows. Do you think it is a sustainable rally or the market could see another 10 percent correction?
The market operates in cycles and that is its nature. Another correction of 10 percent is not on the cards considering most risk factors and negative sentiments are priced in.
The overall market will go through a consolidation phase before moving a leg higher. During this phase, the fundamentally weak companies will witness further decline whereas the companies with supporting fundamentals will outperform.
How do you read the market reaction after the US Federal Reserve’s move on interest rate?
The market has welcomed the rate hikes by the US Federal Reserve with great optimism. The rate hike that was announced last Wednesday night was less hawkish than the markets expected. With CPI inflation at nearly 8 percent, the market was pricing in a hike of 50 bps, which instead was at 25 bps.
We believe the market had priced in a very aggressive tightening by the Fed, and now we have the Fed saying we will only move one step at a time, which is a great news for the markets in terms of reality versus expectations.
Like Federal Reserve, do you expect a series of rate hikes by RBI in the current year?
Not particularly. Inflation prints in India have been marginally below the upper band, and the supply crunch we are witnessing is nowhere compared to the magnitude of that in the western regions.
The RBI has emphasized on primarily focusing on the economic recovery and subsequent growth above all else. Considering India is forecasted to be the fastest-growing economy in the world by the International Monetary Fund (IMF), the interest rate trajectory adhered by the Fed and the RBI will be diverging.
What do you want to pick now for your portfolio given the market stability seen for the time being?
We want to pick stocks with low debt, companies with high operating margins, the strongest management team, and those operating in favourable industries.
Is it time to bet on consumer discretionary stocks?
Time to invest in discretionary is yet to come. With increases in raw material prices, and interest rate hikes, margins of companies in this space will witness a profit squeeze while demand for the same flatters.
Moreover, the rural demand which is the backbone of our economy is lagging. Hence we would disdain consumer discretionary at this juncture.
FIIs on March 16-17 turned buyers for the first time since February 11. Is it the sign of enormous selling by FIIs coming to an end, and also what were the major reasons for significant FII selling taking place since October 2021?
With inflation rising, the Fed becomes compelled to increase interest rates. When interest rates are forecasted to increase, the attraction towards emerging markets usually wanes. It’s not about what the FII sentiments are in the immediate term, but where FIIs are placing their bet for the long term.
With China’s regulatory crackdown and evolving ambiguity, and with Russian markets being untouchable, we believe India is the ideal place to be for FIIs’ and capital allocation will increase.
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