Markets are in fine balance as of now and barring short-term trading moves, much downside is not seen, believes Roop Bhootra - CEO, Investment Services, at Anand Rathi. In an interview with MintGenie, Bhootra said that strong cash flows, long-term growth plan to address future growth, adequate capital structure, and higher return ratios should be key parameters to picking a stock. He prefers banks, consumer, and manufacturing space in the current environment. Edited Excerpts:
After a strong July, markets again faced some volatility in August. What is your take on markets for the rest of 2022?
I think markets are in fine balance as of now and barring short-term trading moves basis global news flows don’t see much downside as companies are doing well on the business front and earnings growth is also expected to support the valuations going ahead as companies sustain momentum.
Which sectors are likely to lead the next leg of the rally on D-Street?
Financials mainly Banks, consumer, Manufacturing and Engineering including defense, Chemicals and specialty chemicals continue to look promising also some traction is seen in Realty and Travel & hospitality segment.
FIIs returning back to Indian markets, but do you think a high valuation could play a spoilsport?
Don’t think so as valuations are currently at reasonable levels on key indices like Nifty50 which is trading at about 18x times FY24E earnings. Even there are a lot of stock-specific opportunities available at reasonable valuations. Also, India is the only large economy expected to grow at higher single-digit levels in the medium term which also makes our markets attractive and some valuation premium is justified.
What are your parameters for picking stock in the current market scenario?
Strong cash flows, a long-term growth plan to address future growth, adequate capital structure and higher return ratios are some key parameters.
What should be the investment strategy of new investors, starting in September?
First of all, any investor must start with a view to invest and be invested for 3-5 years or more in the market and let the companies invested deliver on the businesses rather than invest for short-term gains. Secondly, investors should not hesitate to take the services of qualified and experienced people so that they invest in businesses with a good track record and better performance.
What is one investment rule every investor should follow?
Never invest with borrowed funds and for the short term.
Where do you see the rupee and bonds heading in 2022?
I think RBI has done impeccable work of maintaining the balance between currency, inflation, growth and rates in this volatile environment, especially in post covid era. Don’t think any significant deviation from the existing framework of continuing to maintain balance and avoid any sharp appreciation or depreciation in the currency.
Can midcap stocks outperform in September again, after August? What factors will help in that?
On a stock-specific basis yes, there are many good and high-growth stocks in mid and small-cap space which has the potential to outperform their large caps counterparts. The factors which aid in outperformance are low revenue base and huge growth runway, higher incremental growth to capex ratio.
With the recent outperformance do you prefer midcaps over largecaps? why?
I think the choice should be based more on investors’ risk and reward expectations. Mid and small cap does provide outperformance but also comes with larger risks while large caps provide steady growth with comparatively less risk.