Markets may have some consolidation or a small correction after a significant gain, but that will be a good buying opportunity, says Parth Nyati, Founder of Tradingo. In an interview with MintGenie, he said that staying invested seems prudent due to the highly optimistic outlook for the next 3-5 years.
However, short-term investors can consider profit-booking where valuations appear stretched, he added. He also believes that the midcap and smallcap space is looking a little overvalued at the current juncture and investors should be selective in this space.
Market valuations have now become expensive. By when do you expect the market to start consolidating or more new highs are in sight?
Despite the prevailing bullishness in the market with favorable 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. We may see some consolidation or a small correction after a significant gain in the market, but that will be a good buying opportunity.
Even though experts are cautious, mid and small-cap stocks continue to soar. Why is that? What is your outlook on the overall broader market space?
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.
What market strategy should investors follow for the remainder of the year?
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 capitalize 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.
Are you in favor of growth investing or value investing?
Due to the constantly changing market dynamics, there is no one-size-fits-all strategy; thus, a balanced approach that combines both value and growth is prudent. Opting for growth at reasonable valuations is a favorable strategy in the current market. While certain sectors offer value opportunities, others may necessitate a growth-oriented approach. By carefully analyzing each sector's potential and considering growth prospects vis-à-vis their valuations, investors can strike a well-informed balance between value and growth strategies. This approach allows better risk management and capitalizes on opportunities across various sectors. This maximizes overall investment returns in a dynamic market environment.
What about fixed-income asset investors? What should be their strategy?
Fixed income returns are currently near their peak, prompting individuals to seek to lock in these attractive rates. As interest rates stabilize and potentially begin to reverse, long-duration debt instruments are expected to become more appealing. Investors can anticipate appreciating market prices for these instruments, leading to potentially better returns from mutual funds that invest in them. As interest rates decline or stabilize, bond prices typically rise, benefiting long-duration debt instruments. This trend can be advantageous for investors who allocate their funds to mutual funds that focus on such assets. However, it's crucial for investors to exercise caution and assess their risk tolerance while considering these opportunities.
How do you see the IPO market for the remainder of this year? Any company you are specifically waiting for?
Amidst a robust bull market and optimistic sentiments, companies have favorable conditions to raise capital through IPOs. The ongoing bullish trend in Indian equity markets is expected to continue for several years, indicating sustained prosperity for IPOs. While sentiment influences initial listings, investors must assess strong fundamentals beyond the initial excitement. Though many IPOs may promise immediate gains, only a few will exhibit long-term performance. While benefiting from market sentiments for listing gains, holding positions, in the long run, requires a thorough analysis of a company's business prospects and management quality. Tata Technologies IPO, after 19 years, holds excitement due to Tata Group's reputation and potential.
What are your views regarding the June quarter earnings so far?
As expected, the IT sector's earnings remained subdued, while the financial and capital goods industries continued their robust performances. The pharma sector pleasantly surprised the market with sharp improvements in margins. However, the chemical sector may face some margin pressure. Remarkably, oil marketing companies delivered one of their strongest performances. Meanwhile, the FMCG, auto, and metal sectors reported mixed earnings. Overall, earnings have been positive, except for IT and chemical companies, which experienced challenges.
Do you see RBI raising rates in the August policy?
We anticipate the RBI to maintain a status quo on both rates and stance in light of the current economic conditions. Despite inflation running below 5 percent, there are potential upward risks in the upcoming months, particularly due to the sharp rise in the prices of vegetables and pulses. As a result, the central bank is likely to adopt an extended pause in its monetary policy to carefully monitor the inflationary trends and ensure stability in the economy. This cautious approach will help mitigate potential risks and support a balanced economic growth trajectory.
What MF strategy should one follow with markets trading around peaks?
The market is currently trading close to its all-time high, and although corrections may occur, it is not indicative of a market peak. The overall bullish trend is expected to remain intact. In light of this, investors are advised to stay invested, with Systematic Investment Plans (SIPs) being an ideal method to navigate this bull market. To manage risk, a proper balance between large-cap and mid-cap mutual funds is recommended. By adopting a diversified approach and staying committed to SIPs, investors can capitalize on the market's upward potential while managing volatility effectively.
One piece of advice for new investors
Seize the opportunity of the Indian bull market and stay invested to capitalize 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 maximize their chances of successful wealth creation in the Indian equity market.