Ashok Jain, managing director and chairman of Arihant Capital believes that the markets may correct further from these levels. However, as inflation cools off and interest rate hikes come to an end, the markets may stabilize. In an interview with MintGenie, Jain talked about the sectors he is bullish about.
Edited excerpts:
Is it a good or bad time to enter the market? The Fed remains a top trigger for the market. Why have we not been able to fully factor in rate hikes? Why have we not been able to fully factor in rate hikes?
As inflation remains sticky, Fed continues to hike rates albeit at a slower pace. There are no signals that Fed will pivot away from its stance any time soon.
Even in India, the January inflation numbers came in higher than expected and RBI is still trying to tame this inflation.
Since the central banks are playing catch-up, we are not able to fully factor in the impact of rate hikes on the markets.
But until rate hikes continue, the markets may remain choppy and volatile as liquidity will be crunched.
Since India is still at higher valuations compared to global markets, a good way to enter the markets right now is to start investing in value stocks in tranches.
Historically, we have seen a growth in value stocks during such times, so it may be prudent to invest in zero-debt companies.
Long-term investors can look at market corrections as an opportunity to invest in fundamentally good companies.
The domestic market is among the worst-performing markets this year. FPIs have also turned bearish. Are we yet to see the worst?
Currently, Indian markets are trading at higher valuations and have seen negative flows from foreign portfolio investors (FPIs).
FPIs being big sellers, can cause underperformance and high volatility in the markets.
As inflation cools off and interest rate hikes come to an end, we may see the markets stabilizing.
Markets may correct further from these levels.
How would you rate the last quarter's earnings of Indian companies? Which sector has made you cautious? Please explain your views.
There were hardly any earnings surprises in this quarter. Most of the companies have delivered numbers in line with market expectations.
In some cases, such as in IT stocks, the results are better than what the market had feared, which led to a pickup in the IT stocks.
Cement and FMCG companies possibly saw the worst quarter with input costs going up and margin compression.
But the fall in logistics cost should have some positive impact for both sectors and margins may see some improvement in Q4 and Q1 onwards.
However, commodities have started turning around again which may again lead to pressures on margins for these companies by the end of Q1.
We have been cautious in the paint sector due to a lack of demand, despite the margin uptick expected because of lower input costs.
Intensifying competition due to the entry of big players in the industry is also a dampener for the sector.
Which sectors are you bullish about, from the medium-term perspective?
Rather than sectors I foresee a company-specific market and companies with good governance, growth prospects and relatively reasonable valuations are expected to do well.
On a sector level, infrastructure, capital goods and defence sectors should perform well. I am positive about the housing sector.
Cement and railways are also good sectors if one wants to increase infrastructure play.
Since some FMCG and financial stocks have corrected one can add these stocks on dips.
IT is a good play due to higher demand and benefits arising from the upward movement of the dollar.
Is it time to focus more on large caps and stay away from mid and small caps until the dust on rate hikes settles?
Large-cap companies are slightly better positioned to bear the interest rate hikes, whereas markets going forward are expected to be company specific.
But that is not to say that you should avoid midcaps even if some quality stocks are available at attractive valuations.
One can consider midcap stocks for their higher return potential, but one just needs to ensure to pick companies with strong fundamentals, good management and strong corporate governance.
What kind of asset allocation would you recommend to investors for 2023?
For asset allocation, I don’t believe there is a “one-size-fits-all” approach.
One needs to decide their exposure to various asset classes based on carefully considering their risk profile, income sources, age, and future financial aspirations.
Since interest rate hikes have not yet come to an end, one can increase some allocation toward debt and gold also needs to be done along with equity.
There is a strong influx of retail investors in the domestic market but a majority of them are not making money. A recent report from SEBI highlighted that 9 out of 10 traders in the equity F&O segment incurred losses during FY22. Should retail investors avoid F&O trading?
In the last few years, especially post-covid, we have seen an emergence of do-it-yourself (DIY) traders, and an influx of finance influencers.
A lot of new digital trading platforms have made it easy for young inexperienced investors to trade more speculative futures and options.
The easy-to-use platforms and the lure of low brokerage and high profits easily entice new traders.
But most of these new entrants lack investing know-how and have probably never traded before. F&O trading remains a complex game and requires a specialised understanding of the markets.
Warren Buffett has rightly said that derivatives are weapons of mass destruction.
F&O trading is highly risky and without proper knowledge, it is akin to gambling.
In my last three decades in the stock markets, I have seen the more often small investors trade with the attraction to make quick cash, the worse their returns are likely to be.
The losses widen when they get involved with futures and options trading.
I do believe that young traders should tread with caution, especially in the lure of low-cost retail investment applications, and not dabble in F&O trading without gaining experience.
It should not be seen as an avenue to make quick cash.
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
