"We are bottom-up stock pickers and usually don’t take market valuation based views", says Anup Maheshwari, CIO, IIFL AMC. In this interview with ET Wealth, he discusses how he read the stock market right now especially, the sectors he is bullish on going forward and gives some advice to equity investors. Before bouncing back, the Sensex hit the 10% correction mark this week. What should investors do in times like these?Markets are at higher levels and therefore, investors should expect higher volatility. Once you ignore the covid-related noise, you will notice that Nifty has gained from around 12,000 in December 2019 to around 14,000 by December 2020. It is natural for the market to consolidate after doing well.Will the lockdowns and the market’s response to it be as bad as last year?Last time, everyone was totally clueless about the virus. However, this time, doctors have a much better understanding. Policy makers too know that they can’t disturb the economy with severe lockdowns. Market reaction will also be muted because markets react violently to unpredictable events. Since the lockdown came as a shock last time, it triggered a panic reaction. It is not a total surprise this time and market participants know the playbook better. India is not the first country to witness the second wave and many countries have already seen third and fourth waves. Since these waves have not impeded stock market performance in those countries, there is no reason to assume the same will happen here.What factors will drive the market now?Once the short-term reaction to lockdowns is over, the market will start looking at the bigger pictures like expected earnings growth. Driven by sectors like finance, metals, materials, etc., we are heading towards above average earnings growth. Won’t the global increase in commodity prices impact margins?Commodity price rise is not bad per se. What we have observed over the years is that the initial rise is positive. Demand keeps up with it and companies are able to pass on the additional cost. In fact, revenue and earnings growth will be higher in moderate inflationary period. However, challenges will arise if the price rise is sharp or happens in a short period of time because demand will then take a hit. It will become a challenge for the companies only if commodities continue to rise unabated from current levels.Low interest regime is supporting the economy and the market. How long will this continue, given that inflation is at higher levels now?Food inflation is a major part of the Indian inflation story and it is not expected to spiral due to good production last year. Once food inflation is under control, the overall inflation won’t go up much. So long as crude remains below $70 per barrel, imported inflation is also not a big worry. Inflation is manageable currently and RBI can continue with accommodative stance.RBI can keep benchmark rates stable, but will market determined rates move up?Though there will be some rise due to increase in economic activities and commodity prices, it will be gradual. We are not expecting any sharp rises in interest rates in 2021. India is trying to get into the global bond index and if that comes through, we may see decent inflows into Indian bonds. This will keep rates stable.How would you read the stock market right now, especially in terms of valuation?We are bottom-up stock pickers and usually don’t take market valuation based views. Right now, the broader market is not cheap, but we continue with our bottom-up stock picking and are happy so long as there are enough companies with good earnings potential at reasonable valuations. However, beyond a certain valuation, investors may have to revisit their asset allocation.From a narrow rally, the market is broadening now. How long will this broadening continue?Narrow rally happens when the economy is doing badly and only a few businesses do well and money starts chasing them by paying super premium. Broadening is a good indication that the economy is doing well and there is a lot more optimism about its outlook. Our sense is that it looks good for the next two years in terms of economic uptick. Therefore, this broadening trend should continue for a couple of years and since a lot of underlying businesses are doing well, there will be several company-specific opportunities. How is the mid- and small-cap segments placed now in terms of valuation?From a valuation perspective, mid- and small-caps are cheaper now. However, we recommend flexi-cap funds for average retail investors because mid-caps will get into higher valuation later and investors may not be able to spot it. So, it is better to leave that option to fund managers and let them decide when to shift a portion from mid-caps to largecaps or vice versa.What are the sectors you are bullish on now?Though financial services is a high beta sector, we are bullish on it because financials need to do well if the economy has to do well. Financials are going to be the key element in market performance also because it comprises around one-third of our market and broader markets can’t do well without financial services participating in it.Apart from finance, we are not very particular about any specific sector; it is going to be a broad-based rally now and there will be good companies from diverse sectors.What about Covid-impacted sectors?These sectors will have to struggle a bit more. However, their struggles can’t go on forever and things have to improve. Consider them only if you have long-term view. If you plan to invest, focus on larger players from these sectors because they will be the last ones standing.
from Economic Times https://ift.tt/3tVHH1U
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