“We are reducing our exposure to infrastructure related capital goods companies and some mid-cap stocks where we no longer feel comfortable with the valuations,” Gohil said in an interview with ETMarkets.
Despite geopolitical concerns, Nifty has crossed 25,000 this week. What is driving this rally? Hopes of a rate cut by the US Federal Reserve or liquidity?
It will be important to monitor whether these geopolitical tensions are causing significant changes in key economic indicators such as inflation, a stronger dollar, higher oil prices, and supply chain disruptions.
Despite these geopolitical risks, especially the trade war and sanctions, the dollar index has weakened, inflation has eased, commodity prices have fallen and crude oil prices have remained relatively stable, benefiting the Indian market.
Foreign portfolio investors have been buying Indian assets over the past 15 days, despite valuation concerns and the market being close to all-time highs, according to NSDL data.
The Indian market rally is not just driven by the expectation of a Fed rate cut. Unlike other markets where the rally is concentrated, India is also supported by strong macroeconomic fundamentals and broad-based improvement in corporate earnings. Indian consumer spending has been sluggish, but recent data shows signs of improvement, especially in rural areas. Moreover, the market is pricing in at least a 25 basis points rate cut from the Fed in September. India’s inflation has already eased to comfortable levels and real interest rates look high, giving the Reserve Bank of India (RBI) more room to cut interest rates. Hence, the market is attracting buying interest despite a slightly weaker than expected June quarter earnings season.
It seems like a runaway rally but it hasn’t given many investors a chance to get in. Are we seeing a FOMO-like scenario among DIIs?
Our client base includes a large number of ultra-high net worth (UHNW) investors. There are two groups: those who are waiting for a market correction before investing fully in equities, and those who are already fully invested with a long-term view and are actively looking for additional investment opportunities to earn higher returns.
India is currently in a favorable position and, barring a potential tactical correction of 10-15%, we believe the Indian equity market will continue to generate significant wealth for investors over the long term.
Are you leaving dry powder lying around when the market is trading near record highs?
Our outlook on India’s macro and equity fundamentals remains positive and we recommend continuing to invest as per our specific asset allocation strategy.
Currently, we advise our clients to allocate 80% of their equity investments to large-cap stocks and 20% to mid- and small-cap stocks.
How do you advise investors on stocks? What is your approach to your stock advisory business?
I am passionate about macroeconomic analysis and strongly believe that understanding and interpreting global and regional economic trends, as well as geopolitical changes, is a key component of successful stock selection.
Since sector rotation strategies are often driven by these factors, a clear view of macroeconomic conditions is essential to consistently outperform them.
Secondly, it is important to maintain a balanced approach and flexibility and avoid excessive risk taking. A fund manager’s longevity depends on his ability to generate consistent returns, not just occasional strong performance.
Our investment committee is well-balanced and benefits from extensive research information from our in-house team and other sources.
There is a lot of talk that the US Federal Reserve will probably cut interest rates at its next policy meeting. How will this impact the Indian market?
Generally speaking, Fed rate cuts are positive for emerging markets (EMs) as the dollar index has already started to weaken, which is favorable for capital inflows into EMs.
India’s weighting in the MSCI EM index has recently increased to around 19%. Lower Fed interest rates could also lead to lower emerging market yields, lowering required rates of return and improving valuations.
Monthly SIPs stood at Rs 23,000 crore last month, which has helped stabilise the market amid FII selling, but at the same time, do you think it has also boosted stocks in the expensive category?
Excessive retail frenzy has pushed valuations of certain stocks to unsustainable levels. Investors are advised to exercise caution while considering companies, especially those with limited share float and questionable promoter quality.
On the supply side, equity supply has come not only from foreign portfolio investor (FPI) sales but also from initial public offerings (IPOs), qualified institutional buyers (QIPs) and promoter share sales, which are being absorbed by retail investors and domestic institutional investors (DIIs).
The depth and breadth of the Indian equity market is expanding, reflecting accelerating GDP growth and accelerating financialization of savings – a positive structural trend.
What about sectors? Which sectors do you find positive and attractive? Which sectors are you avoiding or recommending reducing your holdings/positions?
We are positive on domestic focused stocks such as select NBFCs, real estate and travel & tourism.
We have been adding consumption-led stocks and reducing beta by adding exposure to defensive stocks such as pharma, consumption and to some extent IT stocks.
We are reducing our exposure to infrastructure capital goods companies and certain mid-cap stocks where valuations have become less comfortable.
(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. They do not necessarily represent the views of The Economic Times)
