 "Market in oversold zone, good time to buy beaten-down stocks: Jayant Manglik")
Nifty is oversold and investors should use this opportunity to accumulate beaten-down stocks, said JAYANT MANGLIK, President - Retail Distribution at Religare Securities in an interview with Aprajita Sharma. He suggests that long-term investors should not realign their portfolios on account of the government’s demonetisation move. Edited excerpts:
Where do you see the benchmark indices headed from here in the backdrop of global and domestic developments?
Market is fundamentally strong and we have many positives going for us. Technically, too, we do not expect any major slide in benchmark indices from the current levels as they have already lost nearly 6% so far this month and are trading in oversold territory. The existence of major support at 8,000 level in Nifty strengthens our case for consolidation in the near future. From a year’s perspective, it will probably turn out to be one of the best 12 months in recent memory.
Can demonetisation move delay revival in corporate earnings? How should investors realign portfolios?
We feel the impact of demonetization would be visible on select sectors such as real estate and consumption for a quarter or two; but by and large, its long-term implications will be favourable once the money supply gets normal.
For long-term investors, no portfolio realignment is needed, provided they are holding fundamentally sound stocks. The markets are quick to factor in near-future fall in earnings and investors should keep cash ready to invest at these opportunities. This is a classic investment opportunity disguised as a market fall.
What about banking stocks? Is it the right time to buy from a 6-12 month perspective?
We have been maintaining our positive bias on banking stocks for long and expect the prevailing momentum to continue ahead as well. However, one should be selective now for fresh buying as we have already seen a decent surge post demonetisation, especially in the PSU pack. Therefore, every dip from current levels should be seen as a buying prospect and this will be a leading sector driving the indices.
Will Reserve Bank of India (RBI) follow an aggressive rate cut cycle now? How many rate cuts do you expect in the remaining half of FY17?
The recent contraction in retail inflation is certainly encouraging and it has indeed raised hopes of a further rate cut as early as next month. But, there are other factors like the US Federal Reserve’s stance on interest rate and macro-economic data, which the RBI will also consider before taking any action. The weakness of the rupee will also be a consideration before this decision is taken. If all factors are in favour, then a rate cut is certainly on the cards. However, more than one rate cut in the next six months will be a brave move.
Which sectors and stocks, according to you, still merit a buy at the current levels? Which ones should be avoided, and why?
After the market stabilises, traders should prefer banking, auto and select NBFCs for fresh longs while stocks from the realty pack may continue to reel under pressure as they are already in a downtrend and their situation is expected to worsen further, at least in the near future due to demonetisation. Once the effects of demonetisation get absorbed, then the real estate sector will once again become a favourite riding a new low-interest regime coupled with some other expected steps for the sector.
What's your advice regarding consumption related sectors and stocks now?
We suggest keeping a cautious stance on consumption based stocks and sectors for now as they’ve already reacted sharply and are still witnessing excessive volatility. Investors may choose selectively from the consumption based sectors and stocks as we feel the demand will resume after the recent mismatch of currency demand and supply situation would improve. There is obviously a price at which each stock is attractive but this must be compared with alternatives available in other sectors as well. So if other stocks in safer sectors are available with a higher potential, then that must be considered.
Will the US Fed rate hike impact markets, or is the possibility already factored in? How are the emerging markets likely to react to the development?
Frankly, it’s more or less discounted now and in fact became obvious after the US elections, as the new dispensation is not in the favour of the prevailing interest rate scenario. Also, the recent macro-economic data from the US shows that their economy is now much more stable and looks ready for the normalisation process. It has been a steady build up over almost two years now.
Therefore, though we might see an immediate knee-jerk reaction in the emerging markets but it’ll be short-lived as the macro-economic situation has significantly improved world over in the last two years. So the US interest rate factor alone will not drive market direction now for any sustained period of time.
