Long-term investors could continue to hold their stocks which continue to show promising business prospects in long term and should not fear the current market situation, said Roop Bhootra – CEO, Investment Services, Anand Rathi Shares and Stock Brokers in an interview with MintGenie. He is positive on IT, Chemicals and Specialty chemicals, Manufacturing, Services, and Staples and underweight on consumer and discretionary in the near term due to inflation concerns primarily.
The markets witnessed a massive recovery this week, do you think it is sustainable or we are more likely to stay in the bear phase in the near term?
We are currently in the final leg of results season and so far results have been good on the revenues front for most companies however, some concerns are there on the margins front due to continued supply chain and inflation issues. Also, interest rate hikes also are a factor that increases the cost of funds for debt-laden companies and sectors which are dependent on the same.
Looking at current data, things stand in balance as of now and it is expected that growth momentum should continue with some minor decline than previously. Also, inflation seems to be peaking in a few months which could also allay fears of a more aggressive rate hike in the latter part of the year. So, the market looks to remain in consolidation mode in short term with limited major downside risk and when new data comes as expected then we could see some upwards movement in the latter part of the year.
What factors will help the market come out of the bear phase, we are in currently?
Inflation peaking in the short term and easing of the supply-side situation are key factors, important for markets in short term.
What next for the investors? Should they sit tight now?
Long-term investors could continue to hold their stocks which continue to show promising business prospects in long term and should not fear the current market situation as these occur periodically from time to time and are part of how the markets function. They could also look to take advantage of the current downside to build new positions in stocks that are good growth stocks and available at attractive valuations now.
What are your views on midcaps and small caps? Should one avoid them completely and focus on large caps amid the volatility?
I think most part of the downside has been done and good stocks with improving business prospects and low leverage should outperform whether they are large or small caps. Mid-small caps stocks provide greater outperformance than large caps while large caps provide steady and stable returns. One should have exposure in both large and mid-small caps stocks with proper balance according to their risk appetite.
What sectors are you overweight on and why? Most experts are overweight on private banks, what's your take?
We are positive on IT, Chemicals and Specialty chemicals, Manufacturing, Services, and Staples. Private banks in India are proxy for consumer, SME-MSME space and hence overall economic growth. Hence one could see returns aligned to our growth with banks with lower NPAs and higher NIMs outperforming their peers.
What about defensive stocks? Investors generally think of IT and pharma when they hear the word. Has IT corrected enough for fresh entry and can pharma really replicate the surge of 2020 again?
Not necessarily defensive but IT especially after Covid has seen increasing traction on their businesses due to companies globally seeking to make their operations more technologically intensive and less prone to human error, constraints and costs along with increasing risks of security of systems have also opened up various new opportunities. So structurally IT could continue to remain positive and we have seen some correction in valuations in thepast few weeks which also makes it attractive.
On Pharma, we see domestic-based pharma more positively which are into both branded generics and API space.
What are your biggest underweight positions?
Currently, we are underweight on consumer and discretionary in the near term due to inflation concerns primarily.
LIC IPO listed at a discount, what does it say for the IPO market on the whole? the subscription didn't show any lack of demand, so why the discounted listing?
I think it’s more due to current weak sentiments in the markets which led to the muted listing. Otherwise overall the valuations were attractive to peers for the LIC.