Long-term investors should focus on stocks with strong earnings potential and promising growth prospects and utilise the corrective phase to gradually accumulate those counters, said Ajit Mishra, VP- Research, Religare Broking in an interview with MintGenie. Mishra recommends maintaining a stock-specific investment approach irrespective of the market cap. Edited excerpts:
The RBI increased rates in a surprise move, do you think, there is another rate hike in the cards in the June policy?
We believe the upcoming inflation data would be the key factor in deciding the policy stance in June month. Besides, the impact of tightening by the US Fed and monsoon updates would also remain on their radar.
Do you think the market volatility will continue in the near term? what factors will affect this?
We’re in the middle of the earnings season and volatility usually remains high during this period. At the same time, global headwinds like the Russia-Ukraine war and China’s Covid situation are still lingering, causing erratic swings across the globe including our markets. In short, participants should prepare themselves for the volatile swings ahead as well.
For long-term investors, should they buy in this market or remain on the sidelines for some time?
We strongly believe that long-term investors shouldn’t worry much about short-term fluctuation. They should maintain their focus on stocks that have strong earnings potential and promising growth prospects. And, utilise the corrective phase to gradually accumulate those counters.
Which sectors will be the most affected by the RBI rate hike? Will it be positive for banks?
Rate-sensitive sectors like banking, auto, and realty get affected by the change in interest rates however the quantum of rate change plays a critical role in deciding the impact on overall demand. And, we feel it’s too early to gauge the possible impact on these sectors. In general, the rise in interest rates brings in bad news for banks as it affects their loan growth.
What about the real estate sector? There was some recovery seen in the sector but will the rate hike impact that?
Several measures were announced to boost the real estate demand in the last two years which also helped the sector to witness traction. However, the recovery is still in a nascent stage and we feel a rise in borrowing cost could result in a delay in buying plans and that in turn would derail the recovery momentum.
Midcaps and small caps have outperformed the benchmarks in the month of April, what are the main reasons behind that? Do you think this trend will continue? Should investors invest more in broader markets in this environment or prefer largecaps?
We’ve been seeing continuous FIIs outflow in the prevailing corrective phase and they have the majority of their investments in large caps, which could be the reason for recent underperformance. Besides, we usually see largecap underperforming the broader markets in the initial phase of correction.
In the present scenario, we recommend maintaining a stock-specific investment approach irrespective of the market cap. The focus should be on factors such as growth prospects, healthy balance sheet, prudent management and valuation.
How do you see the markets in the next 6 months? will it remain this volatile or do you see it consolidating a bit?
We expect the prevailing challenges like geopolitical tension and high inflation to subside in the next 6 months and that would ease the volatility as well. However, the consolidation may continue and it would be healthy after the phenomenal surge in the last two years.
What are your top sectors to invest in this environment which might be least affected by this volatility?
Defensive viz. FMCG, pharma and IT tend to do well during the corrective phase however it’s not necessary as a lot depends upon the overall market cycle and recent performance. We thus reiterate our view to consider a “bottom-up investment” approach instead of focusing on any particular sector as we’ve been seeing a mixed trend within the sectors and expect the scenario to continue.