In an interview with ETMarkets, Gohil said: “We are cutting exposure in infra-related capital goods companies and some mid-caps where the valuation comfort has vanished” Edited excerpts:
Nifty is back above 25000 this week even though there were some concerns around the geopolitical front. What is driving the rally? Is it the rate cut hope from the US Fed or liquidity?
It’s essential to monitor whether these geopolitical tensions are causing significant shifts in key economic indicators like inflation, a stronger dollar, rising oil prices, and supply chain disruptions etc.
While these geopolitical risks are concerning – especially the trade wars and sanctions – the dollar index has weakened, inflation is moderating, commodity prices are falling, and oil prices have remained relatively stable, which benefits India’s market.
Despite valuation concerns and market near to all-time highs, foreign portfolio investors have been buying Indian assets over the past 15 days as per the NSDL data.
The rally in the Indian market isn’t solely driven by the anticipation of a Fed rate cut; it’s also supported by India’s resilient macroeconomic fundamentals and broad-based improvements in corporate performance, unlike other markets where the rally is concentrated.While consumer spending in India has been sluggish, recent data suggests signs of improvement, particularly in rural areas. Additionally, the market is pricing in at least a 25 basis point rate cut by the Fed in September.This creates room for the Reserve Bank of India (RBI) to lower interest rates as India’s inflation has already eased to comfortable levels, and real interest rates appear to be on the higher side.Therefore, despite a somewhat weaker-than-expected earnings season for the June quarter, the market has attracted buying interest.
It looks like a runaway rally, and it hasn’t given an opportunity to a lot of investors to get in. Are we seeing a FOMO kind of scenario among DIIs?
Our client base includes a substantial number of ultra-high-net-worth (UHNW) investors. There are two distinct groups: those who are waiting for a market correction before fully investing in equities and those who are already fully invested with a long-term perspective and aggressively seeking additional investment opportunities for higher returns.
We believe, India is currently in a favorable position, and barring a potential tactical correction of 10-15%, we believe that the Indian equity market will continue to generate significant wealth for investors over the long term.
At a time when markets are trading near record highs are you sitting on dry gunpowder?
Our outlook on India’s macroeconomic and equity fundamentals remains positive. We have been recommending to stay invested adhering to the specific asset allocation strategies.
At present, we advise our clients to allocate 80% of their equity investments to large-cap stocks and 20% to mid-cap and small-cap stocks.
How do you advice stocks for your investors? What is the approach that is followed for your equity advisory mandates?
I am passionate about macroeconomic analysis. I firmly believe that understanding and interpreting global and local economic trends, along with geopolitical shifts, is a critical component of successful stock selection.
A clear grasp of the macroeconomic landscape is essential for consistent outperformance, as sector rotation strategies often hinge on these factors.
Secondly, it’s crucial to maintain a balanced approach, flexibility, and avoid excessive risk-taking. A fund manager’s longevity depends on their ability to deliver consistent returns, not just occasional exceptional performance.
Our investment committee is well-balanced, and we benefit from extensive research inputs from in-house teams and other sources.
There is a lot of talk about a rate cut by the US Fed probably in the next policy meeting. How will it impact Indian markets?
A Fed rate cut is generally positive for emerging markets (EMs). The dollar index has already begun to weaken, which is favorable for capital inflows into EMs.
India’s weight in the MSCI EM index has recently increased to approximately 19%. Lower Fed rates can also lead to lower yields in EMs, reducing the required rate of return and improving valuations.
Monthly SIP touched Rs 23000 cr last month – it is helping our markets to remain stable amid FII selling but at the same time do you think it is pushing stocks in the expensive category as well?
Excessive retail enthusiasm has driven the valuations of certain stocks to unsustainable levels. Investors should exercise caution, particularly when considering companies with limited free float and questionable promoter quality.
On the supply side, the supply of shares is not only coming from foreign portfolio investor (FPI) selling but also from initial public offerings (IPOs), qualified institutional placements (QIPs), and promoter stake sales; retail and domestic institutional investors (DIIs) are absorbing these.
The Indian equity market’s depth and breadth are expanding, reflecting faster GDP growth and a more rapid financialization of savings. This is a positive structural trend.
What about sectors – which sectors are you positive on or looking attractive? Which sectors are you staying away from or have recommended to pare your stake/positions?
We have been positive on domestic focused names such as select NBFCs, Real Estate, Travel and Tourism etc.
We have been adding consumption driven names and have been cutting beta by adding exposure to defensives such as Pharma, consumption and to some extent IT names.
We are cutting exposure in infra-related capital goods companies and some mid-caps where the valuation comfort has vanished.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)