“For the next Samvat, I think we should return back to a regime where there will be a preference for quality/cash cows which have underperformed,” says Shiv Sehgal, President and head, Nuvama Capital Markets.
In an interview with ETMarkets, Sehgal said: “I think to spot gems in a falling market, one should follow a sound bottoms up framework of stock picking” Edited excerpts:
We have seen more than 6% correction from the highs in both Sensex and Nifty. What is fueling the fall – is it the combination of the rise in US Yields and geopolitical concerns?
The Nifty50 and Indian equities have been outliers amongst the global equity bourses. It is perhaps the only index in the world that has hit fresh highs in 2023.
Thus, to some extent, some correction was warranted. The recent correction is definitely a rub-off of global events.
Hereon, global events will be more dominant as India’s banking sector liquidity has now normalised and to that extent balance of payment developments become critical. These will be shaped by global developments to a reasonable extent.
The next big question is – should one buy the fall or stay put?
As a long-term investor, one should definitely look to accumulate. As I have mentioned before, the next decade is likely to be India’s owing to its 5D advantage –
i) Deglobalisation – With the world looking to diversify from China, India is a natural beneficiary;
ii) Debt – India is one of the few countries in the world where debt to GDP is lower than that in 2010 (global debt to GDP is 50%pts higher than in 2010);
iii) Deregulation – In today’s world, there are very few places where reforms are happening – India is one of them;
iv) Demography – India stands young in an ageing world. This is likely to shape savings and consumption patterns. Rising domestic equity cult is definitely one of the positive outcomes of the same;
v) Democracy – This ensures that the rule of law prevails, which should protect the interest of investors. Thus, while there could be near-term volatility, longer-term prospects remain bright.
After the recent fall how should one play the small & midcap space?
I would be a little cautious in this space in the near term. Indian SMIDs have returned more than 30% in FY24, significantly outperforming not just their largecap peers, but also their global peers (which have been flat to negative in FY24).
This accompanied by increased global volatility, fading margin tailwinds and moderate growth could weigh on overall SMID sentiments.
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?
A) The management commentary from the quarter has been somewhat mixed bag. Nonetheless, a few trends stand out:
i) Consumption, especially at the lower end remains weak. While corporates are hoping for a good festive season, it remains to be seen if it actually plays out;
ii) ii) Government capex remains strong and a key driver for earnings;
iii) iii) Margin tailwinds are at the fag end as commodity prices have stabilised/marginally increased;
iv) iv) For banks, pressure on NIMs is likely to sustain longer and credit costs have started to spike for a few banks/NBFCs.
We are approaching Diwali as well and entering the new Samvat year. What were your key learnings from the year gone by?
A) Last year has indeed been a big learning curve. When I look back at the last Samvat, we were all staring at a US recession, unprecedented volatility in the safe assets and an uncertain geopolitical environment.
However, despite these risks, equities have done reasonably well globally and Indian bourses, especially the high beta counters have had a dream run.
With the benefit of hindsight, some of the variables like oil prices and US consumer spending held up well during the year which allowed smooth sailing for equities. In a nutshell, my key learnings of last Samvat are that one should caution against extreme bullish or bearish sentiments.
Which sectors are likely to hog the limelight till the next Diwali?
A) Last Samvat was about cyclicals – industrials, real estate, PSU banks, and NBFCs doing well. For the next Samvat, I think we should return back to a regime where there will be a preference for quality/cash cows that have underperformed.
This is because valuations in this segment are very reasonable and in times of uncertainty, these entities have demonstrated strong track record.
So till next Diwali, I think value lies in quality.
How should one spot gems in a falling market?
A) I think to spot gems in a falling market, one should follow a sound bottoms-up framework of stock picking.
My checklist for the same is that one should first look for cash-rich/non-cyclical companies as they would protect downside in an adverse economic backdrop; this should then be followed up with companies having micro triggers – like lowering competitive intensity, new product launches, etc. and finally reasonable valuations. This framework will ensure that downside is protected in a falling market while there is a large upside potential when the tide turns.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)