Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities, expects Indian indices to finish the year with low double-digit gains which will be significant underperformance compared to US markets. In an interview with MintGenie, he stated that the expected earnings growth will ensure that stocks will remain in demand on corrections, however, he warned that markets are trading near their higher range of valuation and there is not much room for valuation multiples to expand from here.
Markets have turned a bit volatile after multiple record highs. Do you see them hitting more peaks now or will they consolidate?
Benchmark indices are likely to digest recent gains. Expected earnings growth will ensure that stocks will remain in demand on corrections.
Do you see Indian markets outperforming global peers in 2023?
No, we expect Indian indices to finish the year with low double-digit gains which will be significant underperformance compared to US markets.
Is the risk-reward still favourable for investing in equities? How comfortable are you with the overall market valuations at this stage?
Markets are trading near their higher range of valuation and there is not much room for valuation multiples to expand from here. This means investors need to be discerning in choosing where they put new money to use. Over the next couple of quarters, as expected strong earnings growth fructifies, markets will turn more attractive.
What investment strategy would you recommend for investors for the remainder of FY24?
General elections in Taiwan, Russia, India and US are scheduled and that means politics will play an equally important role as economics in determining the returns from the markets. Overall, Indian markets are likely to throw up many bottoms-up investment opportunities and investors will do well to focus on individual stocks.
What hits and misses do you expect from the June quarter earnings?
IT companies have disappointed the street while financials have clocked better-than-expected growth.
IT stocks have come under selling pressure post Q1 numbers from some of these companies. This reflects the stiff near-term challenges confronting the IT sector that include a challenging macroeconomic environment. Slowing down or stopping of IT discretionary spending by industries in the financial services, mortgages, hi-tech, telecom and retail space has impacted revenue booking and hence profitability.
What is your view on the US Fed decision last week?
Fed has raised interest rates to their highest level since early 2001. Fed's statement left the door open for an additional hike, but the final decision will depend on how the economic data evolve between now and then. It noted that its rate-setting committee "remains highly attentive to inflation risks.
The US central bank could now go into a pause with a hawkish stance. It could continue to dissuade dovish expectations as it would like to prevent any pre-mature pricing in of rate cuts.
Are foreign institutional investor (FII) flows likely to continue in the next 6-12 months?
We expect the dollar to turn weak and that will lead to higher flows into emerging markets including India. India is likely to attract a higher proportion of emerging markets ex-Japan and Asian flows.
What are your favourite sectors right now?
Financials are the best way to play expected growth in the Indian economy. Capital Goods, Banks, Auto, and PSU could continue to do well aided by the triggers in each of these sectors. Consumer spending that was held back due to uncertainty and supply bottlenecks has now come back to normal levels. Rising capacity utilisation and govt capex spending have led to better times for the Capital Goods sector.
One piece of advice for new investors?
Conviction, Courage and Cash, 3C are required to generate superior returns. Those who do not have access and wherewithal to analyse and track direct equity should take benefit of SIPs. Longer-term equities are likely to offer superior risk-adjusted returns compared to other asset classes. Prepare an asset allocation plan according to your risk appetite and stick to it in thick or thin. Have a long-term orientation and be disciplined in your investments.