Siddarth Bhamre, Head of Research, Religare Broking, believes that the current phase of the markets is the one where bears swallow their words and most of the participants turn bullish. In an interview with MintGenie, he said that this market may offer good returns to risk-takers but will be very difficult for value investors. One's strategy should be to remain invested in markets and into sectors where growth visibility is high even though a valuation cushion may not exist, he suggested. A model portfolio currently should be a blend of growth and value stocks, he added.
Markets have turned volatile after hitting record highs. How do you see them performing in the second half of 2023?
After consolidating for a couple of weeks in the second half of June, markets have started their upward journey led by the mid and small-cap segments. This is that phase when the market makes bears swallow their words and most of the participants turn bullish. In this phase, we typically see a sharp up-move without much of a decline and the market tends to move towards the ultra-expensive zone, though we are not there yet. We believe this market may offer good returns to risk-takers. This market will be very difficult for value investors.
What strategy would you suggest to investors for 2023?
Indian markets remain in a sweet spot with the Indian economy outperforming its global peers and both foreign and domestic flows remain strong. As the world continues to deal with slowing growth with rising interest rates, options to invest are not many. Indian equities still on the global front appear to be the place to be. Our strategy is to remain invested in markets and sectors where growth visibility is high even though a valuation cushion may not exist. The idea is not to get swayed by global noise and concentrate on domestic data points and remain invested.
Should low-risk investors move away from equities towards fixed-income assets or gold due to uncertain market conditions?
Yes. Or they need to be very selective and stock specific. However, the substitute will be fixed income and not gold.
What should a model portfolio look like in this current market environment?
It should be a blend of growth and value stocks. In the overweight sectors, we will put Auto, Cement, Power, and Consumer durables. In equal-weight, it will be BFSI, Oil & Gas, IT, and Pharma.
Which sectors would you pick for this year and why?
Auto and Cement are our preferred spaces to be in. First, on auto, data points suggest demand in this space continues to remain strong despite a hike in interest rates. Reducing input cost pressure and changing product mix are margin positives. Interestingly there are prominent names that do provide valuation comfort as well. So it’s an easy choice to make. In the cement sector, growth visibility is high as infrastructure and real-estate space are quite buoyant. The capacity expansion plan by most of the names in this sector provides good scope for revenue expansion. Valuation may not be very attractive but topline growth will keep investors' interest alive for at least a few quarters.
Banks versus IT? Which is your pick?
Banks should do better than IT. Corporate balance sheet expansion and increasing household debt would keep banks on a high growth trajectory. The IT space has a valuation cushion but overhead winds on global fronts will be ruling investors' minds and hence buyers won’t be aggressive in this space.
IPOs have been making a comeback. Do you see a strong IPO market this year?
The IPO market is a function of sentiments in stock markets. At an all-time high and with mid and small-cap doing well, it will attract a lot of unlisted names to tap capital markets. So yes, as long as this momentum continues, we may see more and bigger IPOs hitting the markets.
Is there more steam left in the broader markets or do you believe the valuations are now high?
Valuations are not attractive. One has to be selective in this space and should not increase allocation. We may see further rise in this universe but we may not see this phase for a prolonged period of time. Honestly, I don’t know how this space would pan out beyond 1-2 months.
While currently, FPIs are net buyers, will they move towards China later on?
China may not be viewed the way it was pre-Covid. China may not grow at those high single-digit rates. So the same sort of allocation to China vis-à-vis India may not happen. However, from pre-Covid highs, our markets have rallied 50% while China has been languishing more or less around those highs. For now, FPI flows may continue.
One piece of advice for new investors.
Invest in your own thoughts. Take small exposure and research more. Once convinced, increase exposure. Learn when to be in growth stocks and when to be in value stocks.