Sensex hit an all-time high on Wednesday, June 21, along with broader market indices Nifty Midcap and Nifty Smallcap. Meanwhile, Nifty is just a few points away from its record high. However, Deepak Jasani, Head of Retail Research, HDFC Securities, believes that the continuation of the high-interest rate regime globally and a rise in domestic inflation can disrupt this spectacular rally.
Amid this, in an interview with MintGenie, he suggests that a 60:30:10 allocation strategy could be good for equities, debt and gold. He also advises investors to stay away from sectors including Metals, Oil & Gas, and IT as they are likely to continue underperforming going ahead.
What trends can disrupt the rally market is witnessing right now?
Possible spoilers include the continuation of a high-interest rate regime globally impacting risk appetite for equities, fast-spreading global slowdown even as China struggles to grow at its earlier pace, local inflation rearing its head again due to the El Nino pattern, political setbacks for the current govt, etc.
While largecaps have performed well, midcaps and smallcaps have had a better run. Why is that?
After underperforming in FY23 vis-a-vis Nifty, mid, and small-cap indices and stocks are now playing catch-up. This is also a factor in encouraging Q4 numbers from the broader markets and the higher risk appetite on the part of HNI and MNI investors over the past few months.
How should one play the broader markets right now?
Temporarily the focus may keep shifting between largecaps on the one hand (coming back in favour in uncertain times) and mid and smallcaps on the other. The allocation between these needs to be made based on the risk appetite and return expectations of investors.
Which sectors should one stay away from right now?
Sectors depending to a large extent on global factors/demand like Metals, Oil & Gas and IT have underperformed. This situation could continue for some more time going forward.
What according to you is an ideal portfolio for a long-term investor right now?
Amongst the financial assets, the allocation between equities, debt, and gold needs to be made based on the age, income levels (and growth), and risk appetite of investors. For a 35-40-year-old investor with a stable income source and medium risk appetite, 60:30:10 could be a good allocation among equities, debt, and gold.
What strategy should one use? Should investors wait for a proper correction to accumulate equity?
A lot would depend on whether the investor is overweight, right-weight, or underweight in equities. In case an investor is overweight on equities, then he could look at booking some profits and raising cash, while an investor who is underweight can keep accumulating equities to the extent required by spreading it over time which may include benefitting out of temporary dips.
Now that the rate hike cycle is almost at its end, what is your view on fixed-income assets?
Interest rates in the system seem to have topped out and hence investors may look to lock in debt yields for longer periods. However, in case the RBI has to raise rates in the event of a large impact of El Nino on foodgrain production and in turn food inflation, then investors may get one more chance to lock in higher rates, but going by current trends it may not be worth to wait for that possibility to complete the entire deployment.
What should one look for in a stock before buying?
The industry, its past and future expected growth rates, volatility in growth rates, exposure to regulatory or govt interference, past 3-5 years CAGR in sales and profits of the company, its RoE, its governance history and capital allocation policies, current valuations vis-à-vis its size, market valuation and peer valuations are some factors to be considered while shortlisting a stock for investment.