In an interview with ETMarkets, Gupta said: “We will soon see a reversal in trend of the FII flows back in the Indian equities considering the long term equity market valuations,” Edited excerpts:
Sensex and Nifty breached Budget Day closing last week but bounced back. Where are markets headed in March 2023 which is also the last month for FY23?
During the last week we have been at the busiest point of the latest earnings season. By next week almost all the corporate results would be out.
So, this would be the time to look forward to the medium to longer-term factors rather than concentrating mainly on corporate results.
Monetary tightening both globally and in India in the last week also had a damping effect on the Indian equity market as also the rise in bond yield in the US.
We think much of these pressures will get eased during the next week and therefore we would expect a positive week for the stock market.
Among the index heavyweight sectors, in line with our expectations, financials underperformed the IT pack in recent weeks. A modest reversal of the same is like during the coming weeks.
With geopolitical tensions increasing – could this lead to another selloff in equity markets and a rise in Gold? How should long-term investors approach this – good time to build the portfolio?
We are expecting short-term volatility to persist for some time now, however basis the corporate earnings results coming in, we observe a regaining of momentum in select segments for both corporate sales and profitability.
With the considerable easing of commodity prices, raw material cost as a percentage of sales has come down and despite a modest increase in employee cost to sales, we estimate, on an average, up to 200 bps increase in operating and 150 bps increase in net margin during the quarter ending December 2022.
Gold has rallied since its drop in Nov’22 by almost 12%, it is considered as a safe haven usually during increased volatility in the equity markets.
Investors can look at allocation in Gold up to 5%-10% depending on their risk profile and broad-level asset allocation.
As the market retested Budget lows – what are the near-term headwinds which the equity market has to battle in the near term?
We witnessed global and domestic central banks, after years of ultra-low interest rate scenarios go ahead with aggressive interest rate hikes to counterbalance record-high inflationary trends.
Globally, China’s zero-COVID policy, cut-down of global growth projections, and the Russia-Ukraine war magnified capital market volatility and investor losses.
In the near term, we don’t see any major shocks other than the ones mentioned to move or bring in any added volatility.
We think a significant level of clarity has emerged on even the ongoing Adani group issues, while the short-term impact of the concerns impacted the market.
We do not expect the medium to long-term impact to be material for the broad market.
RBI could do another round of rate hikes before a pause. What are you suggesting to your clients in a rising interest rate scenario?
By nature central banks are conservative, therefore the slightly hawkish tone of the Reserve Bank of India did not surprise us.
At the same time, the tone of the policy seems to suggest that this is perhaps the last rate hike in this cycle.
Therefore, I would expect RBI to maintain an unchanged or a very conservative policy rate hike cycle during the rest of the current calendar year.
Placement of debt is vital in clients’ portfolios not only as a cushion during volatile times but also to generate regular interest income.
We are looking at tactical allocation in a certain roll-down strategies along with a combination of bonds and debt mutual funds to help generate alpha considering the current interest rate scenario.
What is making FIIs nervous about India? Are they booking profits or the smart money is moving towards fixed-income instruments?
We witnessed FII’s have a strategic allocation to their portfolio into other emerging market economies and also in China port reopening its trade.
In terms of long-term growth, I believe we will soon see a reversal in the trend of the FII flows back in the Indian equities considering the long-term equity market valuations.
There is a saying that ‘Don’t lose sleep over near-term volatility if you are a long-term investor’. But the current volatility almost resulted in a double-digit fall in portfolio value for some investors. How should one navigate the markets?
Investors looking at long-term investment should be strategic as opposed to product-driven. One should assess at the investment objective and risk associated to the investment vehicle.
There has never been such a thing as the ‘Right’ time to invest. While investing, it is the tenor or the duration of the investment portfolio that counts as opposed to the timing of the markets.
Psychologically, there’s this gravitational pull around the markets, where people tend to sell when the markets are really low and then wait for the right time to invest back in, by which time the markets tend to bounce back and they miss the rally.
The most important factor while investing is sticking to your long-term strategy. Looking at historical data, the markets fell by ~-38.4%, from its record high last year during the start of the covid pandemic, now assuming that you had invested even at the peak, the time when the markets were at the highest point, you still would be at ~27.38% abs. returns! This is what I mean by not the timing but the duration of investments.
What would you suggest to investors if they want to diversify their portfolio towards global markets amid the recession, inflation, and currency risk concerns?
Investors should allocate basis their risk profile and asset allocation strategy, before getting into the global markets one should look at the valuation and the exposure of the global portfolio to their overall portfolio.
At the current scenario, investing in tranches via SIP can be a better alternative to consider.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
