Do not get lulled into complacency as the Nifty and Sensex make new highs. According to Aashish Somaiyaa, Chief Executive Officer, WhiteOak Capital AMC, we are witnessing a broad market correction amidst a bull market.
Q. Markets have been very volatile but in a range. What do you think the next three months' outlook is?
Answer: As recently as June 2022, we were at 15,200 odd on Nifty50 and multiple geopolitical and global economic reasons were contextualised for that 20 percent decline between October 2021 and June 2022. Now what I find is that most of those clouds are still very much there but we have not only bounced back based on some speculation of less hawkishness from central banks, we are actually making new highs. The risks are higher at these levels. This is also visible in the shrinking market breadth. On a point-to-point basis, last year, Nifty50 is up but BSE500, NiftyMidCap150 and Nifty SmallCap 250 are negative. Within Nifty also, the bulk of the gains are in a few stocks.
Q. How do you classify this market? A bear or bull market?
Answer: We are standing out as a market, in many parts of the globe it is a bear market and we are witnessing a broad market correction amidst a bull market.
Q. Any specific sectors you think investors should cherry-pick in the current market?
Answer: We are not a top-down or sectoral investor and we do not believe investors should be focusing as such on specific sectors. When there is sectoral stereotyping being done on a top-down or macro basis is when the best bottom-up convictions get formed. Our portfolios have investments in practically every sector wherever we can find companies that we believe demonstrate the potential to generate free cash flow over and above their cost of capital and this is being done with a good governance framework. That said if I see our portfolios and if I look ahead based on the next 5-10 years’ expectations then apart from the usual private sector banks and IT companies which are the largest part of the portfolio, I would say non-lending financials and consumer discretionary sectors deserve attention as growth areas in coming years.
Q. What's your advice to mutual fund investors for this year?
Answer: Do not get lulled into complacency as the Nifty and Sensex make new highs. The external environment is and will remain tough up to the next nine months and in India also the upmove is not backed by broader market participation, it is a narrow rally. Keep money in liquid and ultra-short-term funds and drip it into the markets for good entry points over the next six months.
Q. What kind of mutual funds or ETFs should a first-time investor pick this year?
Answer: A first-time investor should start with a flexicap or multi-cap fund which keeps about half the money in small and midcap and half the money in large caps. If they are finding it difficult to make choices the simplest product would be a broad market Nifty 500 or BSE 500 open-ended index fund.
Q. There are a lot of first-time stock investors as well post pandemic. What's your advice to them on the journey?
Answer: Maximum accretion to new investor base in a mutual fund has not happened just post-pandemic. I think it started post-demonetization when interest rates dropped drastically and digital adaption become a compulsion. For a lot of people who entered in 2017-18 by the time we came to 2020, the experience must have made them feel that equities are not for them. A lot of people entered the pandemic and for them, the feeling must be this is easy. I can just say that it is not as tough as it appears to the 2017-18 cohort and it’s not easy as it appears to the pandemic cohort. None of them should attribute their experiences to markets being a bad place or to personal competence. This is how markets are, they expose us to extremes from time to time. There are times when all trees will grow to the sky and there are times when we feel humans are the next dinosaur.
Q. Is this a buy-on-dips market in your opinion? If yes, what kind of strategy should one employ?
Answer: The market is always buying on dips, only the patience level and time horizon of holding is what matters.
Q. Some market experts are suggesting having cash in hand is the biggest asset at this point. What's your view on that?
Answer: Cash is not an asset but at this point yes as stated earlier keeping powder dry and entering the market slowly over the next six months is a better alternative than being overextended or leveraged or 100 percent invested.