Stock and sector specific rally should continue: Vinay Khattar
Q&A with head of research at Edelweiss
 "Stock and sector specific rally should continue: Vinay Khattar")
After seeing the markets rise steadily since February this year, the big question on minds of retail investors is whether the up move will continue and should they invest at the current juncture?
Vinay Khattar, head of research at Edelweiss does think so. While sharing his views on the road ahead for the equity markets with Business Standard, he points out that the mid-cap segment still has investment-worthy options. Edited excerpts:
The markets have run up sharply over the last six months and valuations have expanded. Do you still think there is steam left in the market?
The stronger-than-expected electoral windfall harvested by the BJP (led by its charismatic leader Narendra Modi) has sparked optimism about a gradual economic revival, leading to a rally in the domestic capital markets.
Although there has been some moderation in the past few sessions owing to concerns over weak monsoon and spurt in crude oil prices, the overall undercurrent remains positive. There is definitely an opportunity left in the market provided one adopts a bottom-up strategy of stock picking, which is a more prudent way to capitalize on what is a historic electoral bounty.
Have the retail investors missed the bus? What will you advise someone who wants to take a fresh position?
We strongly believe that the stock market continuously throws-up opportunities and one always finds an option to enter into stocks with an attractive valuation, irrespective of overall market levels. Hence, our advice to retail investors is generally to stick to companies with good corporate governance and strong fundamentals.
What kind of investing strategy can one follow?
One should try to focus on stocks which are out of flavour with the market or with valuations below their intrinsic worth, as expectations for earnings growth are much muted. In this context, even a small change in earnings growth expectations can result in fairly good stock returns even as the downside is protected.
Vinay Khattar, head of research at Edelweiss does think so. While sharing his views on the road ahead for the equity markets with Business Standard, he points out that the mid-cap segment still has investment-worthy options. Edited excerpts:
The markets have run up sharply over the last six months and valuations have expanded. Do you still think there is steam left in the market?
The stronger-than-expected electoral windfall harvested by the BJP (led by its charismatic leader Narendra Modi) has sparked optimism about a gradual economic revival, leading to a rally in the domestic capital markets.
Although there has been some moderation in the past few sessions owing to concerns over weak monsoon and spurt in crude oil prices, the overall undercurrent remains positive. There is definitely an opportunity left in the market provided one adopts a bottom-up strategy of stock picking, which is a more prudent way to capitalize on what is a historic electoral bounty.
Have the retail investors missed the bus? What will you advise someone who wants to take a fresh position?
We strongly believe that the stock market continuously throws-up opportunities and one always finds an option to enter into stocks with an attractive valuation, irrespective of overall market levels. Hence, our advice to retail investors is generally to stick to companies with good corporate governance and strong fundamentals.
What kind of investing strategy can one follow?
One should try to focus on stocks which are out of flavour with the market or with valuations below their intrinsic worth, as expectations for earnings growth are much muted. In this context, even a small change in earnings growth expectations can result in fairly good stock returns even as the downside is protected.
We also believe that margin of safety exists in stocks that are trading at fair value but the visibility of future earnings is high given the huge opportunity size in their respective businesses.
Also the investing style should be focused on buying companies with good business and management as at price which does not factor in the potential of growth. Hence when the growth materialises investors can make good returns.
Would you say the market has reached irrational levels or is there scope for value buying?
Though we will see correction in the short-term in the broader market; but stock and sector specific rally should continue.
Which segment of the market is still attractive in terms of valuations?
From a long-term perspective, we would look at fundamentally strong large-cap names and investors are advised to follow SIP route to invest into these stocks.
However, based own ownership and valuation metrics, the mid-caps may throw better opportunity in short-to-medium term. Therefore given the current market situation we recommend a stock specific portfolio with focus on robust company fundamentals, a strong balance sheet and a good track record.
Can you highlight some investment-worthy stocks for us?
After screening we have cherry picked six stocks that are trading below their intrinsic worth and have substantial upside going ahead. Stocks like Ratnamani Metals (supplier of high quality tubes to refineries), Engineers India (high-end consultant to refineries), Va-Tech Wabag (water & sewage treatment plant), which are market leaders in their niche areas have significant opportunity to grow given their business strategy and tailwinds of revival in capex cycle.
High quality asset owners like Sobha Developers are also available at a discount to their fair value. Ramco Cement, a south-based branded cement player with cost efficient operation, is available at 45% discount to its large-cap peers. In the large-cap segment, one can accumulate Larsen & Toubro (L&T).