Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS, believes that overall, broad index returns are likely to be limited but narrow indices or sector indices could deliver better returns. In an interview with MintGenie, he forecasted the year-end target for Nifty at 20,400, which implies just a little over 3 percent upside.
He advised investors to remain cautious and focus on the earnings growth trajectory. Companies with strong earnings growth will continue to deliver healthy returns, he added.
Markets have witnessed some consolidation post hitting new highs in July. What trend would we see in the markets for the remainder of this year?
Markets have a very sharp uptick propelled by FII buying till July. However, some degree of consolidation was expected as FIIs turned sellers in August. Thus, to some extent, returns have been front-loaded in FY24. Therefore, the remainder of the year will see consolidation activity between large mid and smallcaps. Overall, broad index returns are likely to be limited but narrow indices or sector indices could deliver better returns.
Do valuations pose a risk at this juncture?
Valuations, in general, are not a significant risk as Nifty trades at one standard deviation above normal on a P/E basis and closer to the mean on a P/B basis. However, the small rally has been sharp and many sectors, like small-cap capital goods, have become expensive. Thus, there is valuation risk in certain pockets, but the valuation risks are not very significant across the board.
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?
Small and midcaps have seen good inflows with mutual funds and PMS schemes. Moreover, corporate earnings in this space have been strong. The structural theme in small and midcaps is the strongest ever. However, there are some challenges pertaining to valuation and price vis a vis quality of business. Thus, some degree of correction can be expected. Currently, 85% of the stocks are trading above their 200-day moving average. The long-term average is 53%. Thus, the market breadth is significantly above the mean, and some correction in market breadth seems quite likely, while the timing cannot be ascertained.
What market strategy should investors follow for the remainder of the year?
Investors should remain cautious but should focus on the earnings growth trajectory. Companies with strong earnings growth will continue to deliver healthy returns. Thus, quality and growth investing should be the key focus areas.
What opportunities do you see in the markets post Q1?
Q1 results were generally good, with more companies beating/meeting earnings expectations than companies that missed. Our earnings expectations for FY 24/25 have seen marginal upgrades, but upgrades nonetheless. The market opportunities continue to be in small and mid-sized banks, NBFCs, autos and auto ancillary space, and pharmaceuticals.
What is your target for Sensex/Nifty for this year end?
Our year-end target for Nifty is 20,400.
The IPO market has been booming this year with so many strong listings. Why is that? Should investors buy upcoming IPOs?
A typical booming capital market results in a booming IPO market. Investors have to be cautious about IPOs. This time, the quality of IPOs has been reasonable, and the IPO market is not exhibiting the exuberance we saw in late 2021.
Indian markets have outperformed most global peers in August but the same is not the case with the YTD figures. What do you see happening in 2023 overall? Will India outperform?
Global markets are more likely to weaken in the remaining part of 2023, while India could still see positive returns. Thus, India will likely outperform global markets in 2023.
What themes should one explore in FY24?
The themes that the market should explore are consumption and asset repricing themes. FY24 will see a significant uptick in election spending. This development will boost consumption spending. Asset repricing is also an important theme as plants and machinery across the board are likely to see higher valuations.
One piece of advice for new investors?
New investors should take time to build portfolios and invest in areas they understand well. During bull markets, everybody makes money, and during bear markets, only a few manage to escape unscathed. The markets will continue to see these cycles. Thus, investing in areas that they understand will help in better decision-making when the cycle turns.