In an interview with ETMarkets, Kadam said: “In our view, one should stay put and use the market declines to add more in a staggered manner from a 3-4 years perspective” Edited excerpts:
We have seen some correction from the highs in both Sensex and Nifty. What is fueling the fall – is it the combination of rise in US Yields and geopolitical concerns?
I reiterate my earlier stance, despite robust macro and healthy earnings trajectory India cannot stay fully immune to global factors.
A mix of global and local factors is driving the current correction in markets. The global factors are –
1) Uncertainty ahead of the US Fed meeting in early Nov-23 and the recent spike in US treasury yields to over 5%
2) Upmove in the USD index (~106)
3) Geopolitical concerns & resultant volatility in commodity prices especially Crude oil and the global supply chain
4) Sluggish global recovery, with growing regional divergences.
Domestically influencing factors are
1) Slower than anticipated recovery in rural demand
2) Below average monsoon and resultant sluggish kharif acreage (food inflation remains a key risk)
3) Higher domestic interest rates and subsequent rise in cost of capital
4) Volatility ahead of State elections
5) Lack of positive earnings surprises or forward guidance upgrades. In the near term, we expect volatility to rise further on account of global factors and India’s premium valuations.
The next big question is – should one buy the fall or stay put?
In our view one should stay put and use the market declines to add more in a staggered manner from a 3-4 years’ perspective.
After the recent fall how should one play the small & midcap space?
The tide has lifted all the boats in this space. Amid India’s buoyant equity markets as well as strong institutional and retail liquidity, several stocks with low public float have also surged this year.
We believe caution is warranted in those names with a lower free float amid a lack of liquidity and low institutional ownership. The recent sharp price cuts across this space have showcased the underlying risk involved.
Investors should focus on stocks and sectors that are showing resilience in the current selloff and look to add quality names with reasonable valuations.
Investors should strictly avoid chasing high multiple stocks and investing based on unsolicited pieces of advice.
What does the management commentary suggest from the companies that have come out with September quarter results? If the geopolitical position escalates there could be further pressure on commodity prices?
As we expected the earnings season this time started on a muted note with no positive surprises. The technology sector earnings though were in line with street estimates, the cut in earnings guidance was more than the street anticipated.
The commentaries sounded cautiously optimistic, however, the pressure on account of the global macro situation is quite visible and is likely to persist in coming quarters.
For the banking sector peak NIM’s era seems behind the bottom line was largely aided by higher disbursals and lower provisioning.
Certainly, geopolitical situation warrants extreme caution, at the beginning of the Isreal- Hamas conflict Brent crossed $90 p/b, but then retreated. The global economy could face high inflation again if crude oil prices rise again.
If oil prices stay high, the US, India, China, and other major nations that import oil may see substantial import inflation. The global macro situation continues to remain gloomy.
In our view current consensus earnings estimates look too optimistic and we could see more downgrades than upgrades as we get more earnings announcements.
We are approaching Diwali as well and entering the new Samvat year. What were your key learnings from the year gone by?
Well, the markets offer some or the other learning every day. The Samvat gone by has taught me the importance of “reaction time”, The Samvat was full of roller coaster rides that were quick and sharp on both sides.
Which sectors are likely to hog the limelight till next Diwali?
In my view Capital goods and infra, Building materials, Auto Ancillaries, Auto OEMs (PV), Pharma and select specialty chemicals.
How should one spot gems in a falling market?
Well, the order goes like
1) sector attractiveness
2) company past performance & future outlook, (earnings trajectory, size of the order book, Capex plan etc
3) Quality of management & execution track record
4) assessing the regulatory/ policy risks associated with the sector or company
5) reasonable valuations (at times you have to pay high for quality & growth)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)