Deepak Jasani, Head of Retail Research, HDFC Securities believes while the Indian markets have been resilient so far, the mood of FPIs will be important to track.
In an interview with MintGenie, he said in case they increase the pace of their selling, Nifty may give away some resilience and fall in line with other markets despite the domestic economy and corporate sector standing up well to the current bout of uncertainties.
Edited excerpts:
Do you see more pain for the market or the worst is behind us? What are your expectations from Nifty this year?
A lot will depend on the interest rate moves in the US. In case the recent UK move to restart monetary easing is followed by other central banks, we could see a short-term rally in the global markets, but the medium-term problems will remain unresolved or even get worse.
While Indian markets have been resilient so far, the mood of FPIs will be important to track.
In case they increase the pace of their selling, Nifty may give away some resilience and fall in line with other markets despite the domestic economy and corporate sector standing up well to the current bout of uncertainties.
On the other hand, any indication by the US Fed that it has come to the end of monetary tightening could see a sustained rise in the global markets in which India may outperform.
Apart from the rate hikes, what is the biggest challenge for the market in your view?
Commodity price volatility and supply disruption, geopolitical issues and global economic slowdown that can hurt the pace of India’s exports are some other challenges faced by the Indian economy and markets.
Fiscal challenges, setbacks to the MSMEs and slow job creation are some other issues faced by the Indian markets.
India's macroeconomic indicators are showing mixed signals. While there are talks of 'decoupling' do you think the Indian market will be unaffected by the risk of a global recession?
In the present day and age, no country can claim to be totally decoupled from global happenings. There can be differences in the degree of coupling or decoupling.
As India’s economy is more inward-looking due to the large demographics and limited dependence on external trade, India is to an extent decoupled from the other economies.
However larger and deeper global negatives will certainly impact India as trade and fund flow into and out of India can get impacted, affecting corporate profitability and valuations.
What is playing in favour of the banking sector? What can spoil the party for them?
Banks are currently enjoying rising credit demand, protected NIMs and stable asset quality. An extended slowdown could impact the demand for credit and asset quality while elevated bond yields could hurt by way of the need for MTM provisioning.
Pharma stocks have been under pressure. Do you see value emerging in them for long-term investors?
After underperforming for the past one year, healthcare stocks can selectively do well from hereon.
Generic price pressure may be coming to an end, domestic pharma sales are seeing a good uptick and new US FDA alerts are few and far between.
The rupee depreciation has provided a tailwind for export focussed companies.
Is it the right time to buy IT stocks? What is your view of the sector?
IT stocks have suffered from the fear of tech spending slowdown in the background of global recessionary fears.
However, so far IT companies have not seen any impact on demand yet, though they and their clients are cautious and watchful of the evolving macro trends.
Margins for IT companies will continue to see challenges from elevated attrition, however, part of this may be offset by improving utilization and raised pricing.
Given the uncertainties and the valuations that are not at attractive levels, one can wait for the Q2 results and management commentary before taking a fresh bet on IT stocks.
Should we stick to largecaps only due to the prevailing uncertainty and avoid mid and smallcaps?
Midcaps and smallcaps have been more resilient lately to the sell-offs partly due to lower institutional holdings. Hence one would ideally not like to cut holdings in mid and smallcap stocks bought after sufficient due diligence.
However, in case the global macro situation is not going to improve or is likely to deteriorate from hereon, the holders of mid and smallcaps may panic more and the selloff in these could be deeper.
The key is to spot and buy stocks after sufficient scrutiny in terms of the company’s revenue visibility, margin profile and operational and financial ability to withstand turbulent times. This is where one will be able to earn alpha.
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.
