scorecardresearchBullish on financials, consumer discretionary and industrials sectors,

Bullish on financials, consumer discretionary and industrials sectors, says Vinay Paharia of Union AMC

Updated: 06 Jun 2022, 07:40 AM IST
TL;DR.

We remain cautiously optimistic for equity as an asset class over the medium to long term, said Vinay Paharia, Chief Investment Officer, Union AMC, in an interview with MintGenie.

We remain cautiously optimistic for equity as an asset class over the medium to long term, said Vinay Paharia, Chief Investment Officer, Union AMC, in an interview with MintGenie.

We remain cautiously optimistic for equity as an asset class over the medium to long term, said Vinay Paharia, Chief Investment Officer, Union AMC, in an interview with MintGenie.

We remain cautiously optimistic for equity as an asset class over the medium to long term, said Vinay Paharia, Chief Investment Officer, Union AMC, in an interview with MintGenie. Paharia added that he believes an ideal portfolio should be well-diversified and should include quality stocks. He is bullish on financials, consumer discretionary and industrials sectors. Edited Excerpts:

Do you think there can be another round of correction in the markets once the RBI and the US Fed hike rates again, or is that already factored in?

According to our assessment, while markets are trading at fair valuations, the current macroeconomic situation remains very volatile. The domestic aggregate demand growth appears to have started to soften, while the supply side bottlenecks continue to remain.

This has led to higher and persistent inflation, which is a thorn in the flesh of global political and monetary authorities. Hence, most of the central banks are now taking strong measures to tighten the monetary policies and some are also resorting to quantitative tightening. This is likely to raise the cost of equity and reduce liquidity in the near term, which is likely bad news for risk assets like equity. Hence, the near-term outlook remains very volatile.

According to us, the medium-term economic growth is likely to be moderate and could revert to the historical rate of growth. We expect moderate growth in the Fair Value of Indian companies and as the markets are trading at fair valuation, the expected returns from equity assets could be closer to the fair value growth in the medium term. Hence, we remain cautiously optimistic for equity as an asset class over the medium to long term.

Which sectors are you bullish on in this current market environment?

We are bullish on Financials, Consumer Discretionary and Industrials sectors. We like the Banking and Financial Services (Financials) sector as companies in the sector have managed the asset quality and operating costs well during the pandemic. In the near future, we expect a cyclical uptick in credit growth, which has remained soft for the past few years. The sector is attractively valued and we expect the stock price growth could be higher than growth in fair value in the medium term.

Consumer Discretionary sector is expected to witness benefits of easing supply-side bottlenecks and many stocks in the sector are trading at attractive valuations. We are overweight on the Industrials sector as we believe that there could be a cyclical improvement in the sector led by growth in private sector capex in the medium term.

What does an ideal portfolio look at amid this volatility?

Equity is a volatile asset class and the current market environment is true to label. Hence, we believe an ideal portfolio should be well-diversified and should include stocks of companies having a good business, run by honest management and which are trading at reasonable valuations.

Should investors shift towards debt funds due to upcoming rate hikes or stay focused on equity funds?

We think that investors should stick to the asset allocation recommended by their financial advisor. Changes in asset allocation are only advisable in extreme market environments.

Do you think the time has come to increase equity investments after the selloff in May?

We do not recommend any change in asset allocation, as markets are now trading at fair valuation.

Buy the dip or stay on the sidelines: What is your advice for long-term investors?

We think that investors should stick to the asset allocation recommended by their financial advisor and should not react to short-term gyrations in the market.

Midcap and small caps have underperformed large caps so far in 2022. Which factors are putting pressure on broader markets? Are mid and small-cap funds a better option for investors?

Based on small and midcap companies in our fund house universe, we think they are fairly valued based on the current set of expectations for the future. However, this segment of the market can witness significantly higher volatility in business and hence we are tactically underweight small and mid-cap companies in our portfolios.

What are the emerging themes in this market?

We are very positive on the innovation theme and are optimistic on the business outlook for new-age companies, innovative business models and disruptive businesses. We think that there could be many companies in this theme that could create good shareholder value in the future.

What will be your advice to first-time investors? How should they begin to make their portfolio?

My advice to first-time investors would be to invest across different asset classes based on their risk appetite and in accordance with the advice of a professional investment advisor.

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Rebalancing of portfolio is the process through which you change the weightage of assets in your portfolio.  
First Published: 06 Jun 2022, 07:40 AM IST