scorecardresearchLong-term investors should stay invested but short-term ones should book

Long-term investors should stay invested but short-term ones should book profits, Sunil Nyati of Swastika Investmart

Updated: 21 Jul 2023, 11:47 AM IST
TL;DR.

Sunil Nyati, Managing Director of Swastika Investmart, advised investors to stay invested in the Indian equity market for the long term but to exercise caution in the midcap and smallcap space.

Sunil Nyati, Managing Director, Swastika Investmart

Sunil Nyati, Managing Director, Swastika Investmart

Despite substantial gains in the Indian markets recently, Sunil Nyati, Managing Director, Swastika Investmart's bullish stance remains intact. In an interview with MintGenie, he advised investors that they can consider investing at current levels but must exercise selectivity when choosing stocks.

"If you have a long-term investment horizon of more than 3 years, staying invested in the Indian equity market seems prudent due to the highly optimistic outlook for the next 3-5 years. However, if you are a short-term investor, it may be wise to consider booking some profits in areas where valuations appear stretched," suggested the expert.

Edited excerpts:

Do you think the current market valuation is very high? Or would you suggest investors buy at these current levels?

Despite the prevailing bullishness in the market with favourable liquidity and sentiment, the Nifty index is not trading at a significant premium valuation compared to its historic average. Currently, the Nifty is trading at 19 times its one-year forward earnings, slightly higher than its 10-year average of 17.5. 

However, caution should be exercised in the midcap space, which appears a little expensive, trading at 22.5 times its one-year forward earnings, exceeding its 10-year average of 20. Despite recent substantial gains, our bullish stance remains intact. Therefore, investors can consider investing at current levels but must exercise selectivity when choosing stocks.

What are your expectations from the June quarter earnings? Will it be similar to the March quarter ones or we can see some new trends?

Looking ahead, we can anticipate that Q1 might resemble Q4 in certain aspects. The IT sector could continue to experience subdued earnings, while the financials and capital goods industries are expected to maintain their robust performance. Additionally, the pharma sector may see improvements in margins, while the chemical sector may face some margin pressure. Notably, oil marketing companies are likely to stand out and post one of their strongest performances. Furthermore, both the FMCG and Auto sectors are expected to witness decent earnings.

Do you see the US Fed raising rates in its July meeting?

The July meeting of the Federal Reserve is likely to be relatively uneventful. The Fed is expected to raise interest rates by 25 basis points, and there is no indication that it is considering any more aggressive measures at this time. However, the Fed's updated economic projections will be closely watched, as they will provide some insights into the central bank's thinking about the future course of monetary policy. However, the market is anticipating that we are nearing peak interest rates.

What risks can hamper the current high Indian markets are on?

The Indian market currently appears to be in a robust state economically, with positive indicators. However, as the assembly elections approach, there is a possibility of increased volatility in the market. Additionally, the slowdown in China poses a challenge for the global economy, and geopolitical concerns remain on the radar. Fortunately, it seems that the inflation situation has improved, and the inflation monster is no longer a major threat. However, it's important to remain cautious, as any unexpected negative developments on the inflation front could potentially disrupt the market sentiment.

What strategy would you suggest to investors in the current environment?

If you have a long-term investment horizon of more than 3 years, staying invested in the Indian equity market seems prudent due to the highly optimistic outlook for the next 3-5 years. The market is expected to remain bullish during this period, presenting the potential for significant growth. However, if you are a short-term investor, it may be wise to consider booking some profits in areas where valuations appear stretched. 

It's essential to capitalise on the bull market's upward momentum while also using the opportunity to exit any underperforming investments you may have made. While waiting for a major correction might not be necessary, keep in mind that there is substantial liquidity available on the sidelines, ready to support large-cap stocks during any potential downturn. As such, even during a minor dip, quality stocks could present an excellent buying opportunity.

Apart from equities, which other assets should one look at now and why?

Silver's appeal grows as it emerges from three years of consolidation. A weakening dollar index and the prospect of stabilising US interest rates create favorable conditions for the precious metal. Moreover, potential economic stimulus in China is expected to propel silver prices higher. With these factors in play, silver appears increasingly attractive to investors seeking potential growth opportunities in the market.

Which sectors, according to you, show the best long-term growth opportunities and why?

Long-term growth opportunities are anticipated in the financial, manufacturing, consumption, and technology sectors. Manufacturing and technology hold significant potential for growth, while the financial and consumption sectors are essential pillars of India's growth narrative. To maximise returns and manage risks, investors should prioritise proper diversification across sectors. 

Furthermore, the pharmaceutical and chemical sectors also present appealing prospects, and certain companies within these domains have caught our attention. Balancing exposure across these sectors can help investors capitalise on India's growth potential while mitigating potential downsides.

Midcaps and small-caps - Yes or no in the current environment?

The midcap and smallcap space is looking a little overvalued at the current juncture. Investors should be selective in this space, as there are a number of stocks that are trading at elevated valuations. However, the long-term outlook for many mid- and small-cap stocks is very bullish. If the interest rate cycle reverses, we may see a further rally in the broader market. While we don't have a complete view of the midcap and smallcap space, we are taking a selective approach. We are focusing on stocks that have strong fundamentals and are trading at attractive valuations. We believe that these stocks have the potential to deliver strong returns over the long term.

Do you see FPI inflows continuing this year, or we may see a trend reversal soon?

I anticipate strong FII flows continuing through FY24, driven by the weakness in the dollar index and near-peak interest rates in the USA. Moreover, investors' waning confidence in China has redirected foreign investments toward India, benefiting our economy. 

Despite our relatively expensive valuations compared to peers, our robust fundamentals justify these premium prices. With favorable macroeconomic factors and the influx of foreign investments, India remains an attractive investment destination, likely to sustain its positive momentum in the global market.

One piece of advice for new investors.

Seize the opportunity of the Indian bull market and stay invested to capitalise on substantial wealth creation potential in the next 5-10 years. However, it is essential to exercise caution during such bullish periods as major mistakes can be made. Avoid potential pitfalls by refraining from investing in poor-quality stocks. 

Instead, focus on well-researched, high-quality companies with strong fundamentals and growth prospects. By staying disciplined and making informed decisions, investors can navigate the bull market effectively and maximise their chances of successful wealth creation in the Indian equity market.

 

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First Published: 21 Jul 2023, 11:47 AM IST