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What is your medium-term outlook on the equity markets?
I think the markets will become very attractive from May – June of this year as the government spend was low at this time last year. Also, the new tax laws will also come into effect from April with exemptions up to Rs. 12 lakh. I think this will boost consumption and if the monsoon is good with water levels already holding up well, we expect that from Q1 and Q2 FY25, we will start seeing good numbers.
And given the recent correction, even the valuation multiples have come down. We have Nifty50 at 19X and small cap at 21X. Mid-cap is a little expensive because the index comprises 150 stocks with mid-cap trading at 26-27X PE. I think markets are in good shape. And considering that growth can give a pleasant surprise, maybe markets will do well now.
The equity market has seen a significant correction in the recent months. However, a few experts believe that the BSE SENSEX will touch the 1 lakh mark at the end of this year. Do you think that the equity markets will see a revival by the end of the year?
These landmarks are aspirational things. I think maybe at some point in time, the way we are growing, we sure will touch the 1 lakh mark. It is only a question of when. If earnings continue to surprise us, we will cross this mark sooner than later.
What are your views on valuations across market segments?
There are different sectors which were expensive earlier and now there has been almost 30-40% kind of correction. So, have they become cheap? The answer is that given the not so bullish earning expectation now, even after the about 30% fall, we still would be cautious about it.
But at the same time, some sectors like consumption and financials were actually cheap. So, by and large, valuations have come down for the market and if there is an earning surprise, we will have certain sectors do well.
AMFI data shows not so good results in stress testing of mid and small cap funds. Do you think that MFDs should not recommend mid and small cap funds considering the growing uncertainty in these market segments?
I think all the mutual funds are disclosing the stress test data. By and large, I have not seen any mutual fund where liquidity is a concern. So, I think investors' interests are well taken care of in this regard.
Most of the mutual funds also disclose what percentage of portfolio needs to be monetized and duration required for it. I have not seen any mutual fund scheme where the numbers have been strikingly different. Apart from that, it is important to remember that every mutual fund, even small cap will have 25 to 30% large and mid cap and generally, the positions of AMCs is always based on liquidity. If a stock has a free float of Rs. 2000 crore then people build allocation based on that in their portfolio. Additionally, I think some of the larger schemes are not taking lump sum in small caps. So, that way whoever has larger size, they are already taking due care in terms of their flows. The industry has been fairly disciplined in their approach.
Which sectors or segments are good bets in the current market, according to you?
I think financials will do well. Discretionary consumption can do well because of the tax breaks.
Defense exports from India also look good due to the geopolitical situation in Europe. Apart from that, there will be certain stocks specific to consumption like hospitals, diagnostics, hotels which will continue to do well.
Which categories of equity funds should MFDs recommend their investors with higher risk-taking ability for lumpsum investments?
If an investor is at an early stage who has consistent income and does not require money for next 3-5 years, I think they should go for small cap and sectoral funds. If the investors need money in the next 2 years, they should go for a large cap fund. Investors with a lower risk profile should look at flexi cap, multi or mid cap schemes.
SEBI has recently introduced Specialized Investment Funds (SIFs). What are the opportunities and risks involved in SIFs?
I think SIF is an interesting category. I believe it will bring a new investor class to the market due to the higher minimum ticket size.
SIFs are for investors who have decent amount of portfolio on their own and also want to hedge their portfolio at certain point in time. So, this category will serve those kinds of investors which are in between mutual fund and PMS investors.
As far as risks go, we need to understand the regulations first because there are still some details that are yet to be finalized.
