"We have been cautious on the markets for the past few weeks and suggest creating some liquidity in the recent pullback, as the uncertainty and volatility are likely to continue for some more time," says Mohit Nigam, Head - PMS, Hem Securities in an interview with Nishant Kumar of Mint Genie. He also shared his views on the IT, banking, and auto sectors.
Edited excerpts:
Every rise in the market is followed by a fresh wave of a selloff. It seems the market is moving in a broad range. Where is the bottom of this market?
Mixed earnings by corporates, rising bond yields, the Russia-Ukraine war, high inflation and anticipation of an aggressive rate hike of 50bps by the US Federal Reserve in May including rising Covid cases in some parts of the country have given a mixed signal to the investors.
Globally, movement in Treasury yields and the Dollar index, coupled with developments in the Ukraine-Russia conflict, will influence market movement. Also, the factors highlighted above will keep the market choppy.
The market seems to be slightly cautiously positioned, as the Q4FY22 earnings season has begun with small disappointments from a couple of large sectoral majors. Hence, investors may wait for more results and hear out the accompanying commentaries to gauge if concerns about earnings cuts are creeping in.
Lastly, the government is ready with the mega IPO of LIC, which may also put some near-term pressure on the secondary markets due to the large supply of fresh paper.
We have been cautious on the markets for the past few weeks and suggest creating some liquidity in the recent pullback, as the uncertainty and volatility are likely to continue for some more time with too many moving parts, providing intermittent opportunities.
Unless there are fresh negative triggers, it is expected that the market may continue trading higher even if they remain in a broad range. But we feel the current uncertainty may pull the benchmark index Nifty50 towards 15,700 which is the major level for the index to bottom out.
Some brokerages have now started saying that the Nifty may not see any upside this year. With earnings expected to be mixed and rate hikes in the offing, the chances of a rally in the market look feeble. Do you think the market can deliver double-digit growth this year?
Markets are bound to rise, the previous peaks will be surpassed by higher highs. Commodity inflation, geopolitical crisis, and earnings headwinds are all temporary factors and one should look at the broader picture.
The ongoing reforms in the nation, imposition of technology, promotion of 'Make in India' and PLI scheme, increase in exports, 'China Plus 1' strategy and other incentives are some of the key factors that will drive the markets ahead.
Being a democratic nation, India is already in a sweet spot amidst the ongoing war situation. Further, with the onset of Covid-19, companies have made themselves resilient to any harsh times ahead.
IT stocks have been under pressure this year so far. What has impacted the IT stocks? Do you see any impact of geopolitical tension on the IT sector?
IT stocks have been under pressure majorly due to supply-side pressure, high attrition rate, steep valuations, geopolitical tensions and some selling from FIIs. We believe that there may be some pressure or volatility in IT stocks in the short term but long-term triggers are intact and investors should use this dip as an opportunity to accumulate good quality IT stocks.
What are your views on the banking pack? Would you bet on midcap financial players?
For most lenders, business momentum has renewed traction, with the third wave of the pandemic having a negligible impact. Lenders are seeing improved collection efficiencies and more moderation in stressed assets as time goes on.
Lower delinquencies are expected in the corporate segments, which were the hardest hit in the second wave, with collection efficiency creeping back up to pre-Covid levels. Banks raised MCLR rates during the quarter, and sustained CASA should have a beneficial impact on overall yields and, as a result, help NIMs.
The focus definitely remains on the banks, and now is the time to add more since many of the banking companies, whether large or mid-cap, have greater clarity on the disbursal front and at the same time have corrected pricing and valuations. If credit expansion continues in this manner, banking stocks may have a comparatively brighter outlook in the future.
The auto sector is reeling under pressure and hardly anyone recommends betting on auto stocks at this juncture. But when the commodity prices ease and inflation moderates, the sector may see some headwinds fading. Can we see the auto sector as a contra bet at this juncture?
After having sharp corrections in FY20 and FY21 after making a peak in FY19, the auto sector has rebounded in FY22 on a lower base. We believe auto demand will revive led by a pickup in economic growth and revival in the rural sector.
With ease in semiconductor issues and cooling of RM prices, we may witness a sharp uptick in auto stocks which are currently sitting at very attractive valuations. So, yes we see the auto sector as a contra bet at this juncture.
Retail investors are saving the market from a major crash even as FPIs are selling Indian equities. What is giving confidence to retail investors when FPIs are losing faith in the Indian market?
Retail investors have reposed their faith by staying invested in the Indian stock markets and by displaying their capacity to absorb the shock due to the outflow of foreign portfolio investor (FPI) funds recently.
Retail investors are finding value in the markets that’s why they are buying aggressively in the Indian markets. Return expectations of retail investors are shaped by returns of the past one-two year and corporate earnings will rise to support this expectation of the retail investors.
Disclaimer: The views and recommendations made above are those of the analyst and not of MintGenie.
