 "It is not a market for quick gains: Anup Maheshwari")
Anup Maheshwari, executive vice president and head of equities and corporate strategy at DSP BlackRock tells Somasroy Chakraborty that investors should wait for corrections before making one time investments in the stock market. Excerpts:
The Sensex crossed 20,000-level on May 8 for the first time in more than three months. Will the rally sustain?
We would not have anticipated such a rise a month ago. The most important thing, we believe, is interest rates are heading lower. Stock markets are very sensitive to interest rates and this decline (in interest rates) is providing a good long-term catalyst. The second important thing is business performance.
The average long-term growth, as per our analysis, is around 15%. I think we are gradually getting to that mark because about half of the companies in Nifty index are performing well. Of the remaining companies, we believe there are pockets of turn that has started to occur. The third factor is that momentum in alternative asset classes is no longer there. Gold prices are pretty much range bound while in property there is a sideway correction in prices.
Will you advise your clients to invest in equities at this point of time?
The market is in a range but gradually that range seems to be getting set higher. In the short-run, you may have overshoots because of excess liquidity but then there will be some events that will negate sentiments. While there are initial signs of improvements, uncertainties also remain.
We are recommending investors to start SIPs (systematic investment plans). It is not a market for quick gains. Diversified equity funds with a bit of large-cap focus are currently the simplest way to invest and (it) will protect investors from market volatility. For one time investments, we are suggesting investors to wait for corrections. We believe 16,000-level can be considered as a better margin of safety for investors.
Which sectors are you recommending for investment in the current market conditions? Which are the sectors that investors should avoid?
Private sector banks continue to do relatively well in this environment. Auto and pharma companies' results have been good. The auto sector is benefitting from lower raw material cost. While there is negative press on some pharma companies, we don't think it is a system wide problem. Telecom sector is looking better.
We are a bit cautious on consumer companies because of valuations. Industrials will take some more time to recover and we may have to wait a little more before investing in information technology companies. We were optimistic on oil companies because we were moving towards a de-regulated environment, but there are some outstanding issues in the sector that we cannot predict.
Has the alleged scam in some banks affected sentiments towards the sector?
It has shaken up the system a bit. But I don't think there is a systemic corruption. There was probably some lacuna in the processes, which required a clean-up. I still think Indian private sector banks are much better managed and events like this will not create an alarm for foreign investors.
There are enough issues in banks abroad. We feel it will be business as usual for private banks and some of these banks will continue to grow at 20% for next 3-4 years. From a business perspective, there will be slow recovery for public sector banks but low interest rates will benefit them. From a share price point of view, we see tactical opportunities in public sector banks.
What has led to strong FII (foreign institutional investor) inflows in the Indian market this year?
It has taken everyone by surprise. We have seen flows from ETFs (exchange traded funds), sovereign wealth funds, global funds but they do not add up to $11 billion. As long as there is cheap money globally it will spill over to emerging markets like India. It may also be driven by low interest rates in developed markets. But one has to be really careful because when interest rates start rising in the US, these flows can reverse.
If interest rates remain high for extended period do you expect a sharp correction in the stock market?
The system has already told us that it expects rates to fall. Liquidity will be an important factor and what we need from the Reserve Bank of India (RBI) is a CRR (cash reserve ratio) cut or some more liquidity enhancing measures.
Inflation is a concern but tightening rates do not necessarily control inflation. Growth, on the other hand, has slowed. Hence, we expect rates to stay low. We are hoping RBI will reduce CRR in the next policy and follow it up with a cut in repo rate.
The Sensex crossed 20,000-level on May 8 for the first time in more than three months. Will the rally sustain?
We would not have anticipated such a rise a month ago. The most important thing, we believe, is interest rates are heading lower. Stock markets are very sensitive to interest rates and this decline (in interest rates) is providing a good long-term catalyst. The second important thing is business performance.
The average long-term growth, as per our analysis, is around 15%. I think we are gradually getting to that mark because about half of the companies in Nifty index are performing well. Of the remaining companies, we believe there are pockets of turn that has started to occur. The third factor is that momentum in alternative asset classes is no longer there. Gold prices are pretty much range bound while in property there is a sideway correction in prices.
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Will you advise your clients to invest in equities at this point of time?
The market is in a range but gradually that range seems to be getting set higher. In the short-run, you may have overshoots because of excess liquidity but then there will be some events that will negate sentiments. While there are initial signs of improvements, uncertainties also remain.
We are recommending investors to start SIPs (systematic investment plans). It is not a market for quick gains. Diversified equity funds with a bit of large-cap focus are currently the simplest way to invest and (it) will protect investors from market volatility. For one time investments, we are suggesting investors to wait for corrections. We believe 16,000-level can be considered as a better margin of safety for investors.
Which sectors are you recommending for investment in the current market conditions? Which are the sectors that investors should avoid?
Private sector banks continue to do relatively well in this environment. Auto and pharma companies' results have been good. The auto sector is benefitting from lower raw material cost. While there is negative press on some pharma companies, we don't think it is a system wide problem. Telecom sector is looking better.
We are a bit cautious on consumer companies because of valuations. Industrials will take some more time to recover and we may have to wait a little more before investing in information technology companies. We were optimistic on oil companies because we were moving towards a de-regulated environment, but there are some outstanding issues in the sector that we cannot predict.
Has the alleged scam in some banks affected sentiments towards the sector?
It has shaken up the system a bit. But I don't think there is a systemic corruption. There was probably some lacuna in the processes, which required a clean-up. I still think Indian private sector banks are much better managed and events like this will not create an alarm for foreign investors.
There are enough issues in banks abroad. We feel it will be business as usual for private banks and some of these banks will continue to grow at 20% for next 3-4 years. From a business perspective, there will be slow recovery for public sector banks but low interest rates will benefit them. From a share price point of view, we see tactical opportunities in public sector banks.
What has led to strong FII (foreign institutional investor) inflows in the Indian market this year?
It has taken everyone by surprise. We have seen flows from ETFs (exchange traded funds), sovereign wealth funds, global funds but they do not add up to $11 billion. As long as there is cheap money globally it will spill over to emerging markets like India. It may also be driven by low interest rates in developed markets. But one has to be really careful because when interest rates start rising in the US, these flows can reverse.
If interest rates remain high for extended period do you expect a sharp correction in the stock market?
The system has already told us that it expects rates to fall. Liquidity will be an important factor and what we need from the Reserve Bank of India (RBI) is a CRR (cash reserve ratio) cut or some more liquidity enhancing measures.
Inflation is a concern but tightening rates do not necessarily control inflation. Growth, on the other hand, has slowed. Hence, we expect rates to stay low. We are hoping RBI will reduce CRR in the next policy and follow it up with a cut in repo rate.