It has been stock picker's market since quite some time now: Rajesh Bhatia

Our emphasis is on careful stock selection within sectors, rather than making significant overweight or underweight sector bets, Bhatia said

The forthcoming earnings season could be one of the major market drivers in the time to come, more so for the mid and small-cap stocks, said RAJESH BHATIA, chief investment officer (CIO) at ITI Mutual Fund. In an email interview with Sirali Gupta, Bhatia said companies with strong earnings in the mid-cap and small-cap visibility are expected to benefit. Edited excerpts:

Has the recent correction removed froth from the mid-and-small cap stocks?

The recent correction in mid-cap and small-cap is due to global uncertainty and sell-off rather than domestic factors. The forthcoming earnings season could be one of the major market drivers in the near-term, more so for the mid and small-cap stocks. Companies with strong earnings visibility are expected to benefit from the same. Given the high beta nature of the mid-and small-cap stocks, we remain cautiously optimistic about these two segments in the near-term, and are focusing on individual stocks.

 

Do you think the September quarter earnings will help markets offset negatives from global uncertainties? Which sectors should be on investors' radar?

The September quarter is expected to be soft. There have been economic data points, such as goods and services tax (GST) growth, auto, cement sales etc. suggesting a slowdown in the economy. However, we think that this was due to the general elections and the heat wave; hence, this slowdown is likely to be transitory.

Importantly, we would like to hear the management commentaries on the business outlook ahead during the quarterly results of these companies. Sectors such as capital goods, telecom, pharmaceuticals, information technology (IT), and insurance will be keenly watched.

Is the time ripe for cherry picking from the beaten down stocks?

It has been a stock picker’s market since quite some time now. There may be instances where companies operating in the same sector may end up reporting a diverse set of financial results. Our approach in such an environment would revolve around the thesis to identify companies’ basis for the “bottom-up” approach, predominantly in the coming 6 months.

From the medium-term perspective, we continue to remain positive on Indian equities due to good domestic growth demand, good visibility of earnings growth, a stable macro-environment, and resilient flows.

Have you made any changes to your portfolio given the global developments? How much (average) cash are you sitting on in your portfolio?

Given the dynamic macroeconomic environment and rising volatility across Indian equities, we maintain our strategy of managing well-diversified portfolios. Our emphasis is on careful stock selection within sectors, rather than making significant overweight or underweight sector bets. Additionally, we plan to avoid taking aggressive cash positions.

Primary markets have been buzzing with activity, especially the SME segment. Are you looking to rebalance your portfolios by picking up some recently listed stocks? If not, what's keeping you at bay? Can the market anxiety affect Hyundai and Swiggy IPOs?

It’s a time when a lot of companies are coming up for listing. Not all companies that apply for listing have publicly available data, or are not extensively researched. Hence, we look at the listings on a case-to-case basis. In case some companies look attractive at a price point and fit in the investment mandates of our schemes, we would not shy away from looking at them.

Will the US elections prove to be another wall of worry for the markets?

If we see a political transition, it is expected to trigger changes in government policies, economic priorities, and regulations, consequently affecting various sectors and companies, not only in the US but across the world. Some research agencies believe that India could likely benefit from the political transition. India in itself is seeing a strong confluence of strong domestic demand, advantages from lower commodity prices, supply chain realignments, and its foreign policy position. All of this may have a positive impact on Indian markets due to the US elections.