“Despite the strong outlook for our economy, we believe that markets can correct about 5-8%,” cautioned Gaurh, but recommends investors to utilise this for deploying lump sum investments in good stock ideas. Edited excerpts from an interview with ETMarkets:
How are you playing the current market momentum? Are you able to identify any bottom-up opportunities?
Neeraj Gaurh: At the current scenario, we are looking to buy more largecaps or large midcaps, unless there is a specific bottom-up idea in the smallcap space.
Our strategic exposure to the PSU space in our Contra PMS scheme has helped us outperform the benchmark this year. Additionally, in the last quarter, we added an oil marketing company across all our schemes.
What is the tone and mood of your clients suggesting about the upcoming general elections?
Neeraj Gaurh: The outlook for the Indian economy looks positive, showing financial stability and sustainable growth. The government has facilitated a balanced approach, with a lower fiscal deficit and capex-led growth. Investors seem confident of the continuity of the current policy framework at the centre.
In the run-up to the general elections, how should investors go about their stock-selection strategy?
Neeraj Gaurh: It is crucial to balance the excitement around new market highs with the potential risks related to geopolitical concerns, especially when valuations offer a lower margin of safety.
Hence, despite the strong outlook for our economy, we believe that markets can correct about 5-8%. However, investors can utilise these opportunities to deploy their lump sum investments in good stock ideas when they have valuation comfort, when growth is accelerating, or when RoEs are improving. What are the underlying domestic themes that you’re extremely bullish on and believe will do well in the longer term, notwithstanding the election outcome?
Neeraj Gaurh: Cyclicals are driving the earnings growth, and we continue to be positive on the capex cycle for the medium term. We like select capital goods, auto ancillaries, building materials, cement and manufacturing-oriented names.
Around six months ago, we launched the Kaizen fund, which is focused on manufacturing, and this particular PMS scheme would not invest in the services sector. It has significantly outperformed the index since the launch.
Do you see frontline sectors such as BFSI and IT taking the lead in 2024 after their underperformance in 2023?
Neeraj Gaurh: Liquidity deficit is putting pressure on the banking system growth and margins. We can expect a reversal of banking underperformance when liquidity conditions improve.
Currently, the central bank is focused on getting inflation towards the lower end of the target band. Once inflation data is more comfortable, we may see some easing there.
The IT sector has recently made a comeback and traded significantly above its pre-COVID levels for a mid-to-high single-digit topline growth with a stable margin.
How do you expect FII and DII inflows to pan out during the year? Which are the factors that will influence the same?
Neeraj Gaurh: The current situation of high US treasury yields and high P/E of Indian markets (versus other global markets) may not be conducive to improvement in FII flows.
When the US rates start to come off, we may see money flowing to EMs (emerging markets) and India. DII share of equity holding continues to increase, offsetting the FII selling.
From a valuation standpoint, how are you reading the Indian market?
Neeraj Gaurh: Investors are showing higher risk appetite, reflected in low earnings yield or high P/E for mid and smallcap names.
On the other hand, largecaps are closer to the historical average. VIX has started seeing some increase from very low levels. The current bullish sentiment is stronger in smallcaps, while largecaps have maintained a balanced level.
Given the slew of events lined up on both the domestic and global fronts this year, what would your asset allocation strategy be?
Neeraj Gaurh: We advise long-term investors to remain invested. New investors can invest in multi-asset and diversified portfolios and not chase highly concentrated smallcap folios, given their last one-year return.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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