Expect a time, price correction over next few months: Jyotivardhan Jaipuria

After a sharp run since their March 2023 lows, the markets seem to be in a phase of consolidation. JYOTIVARDHAN JAIPURIA, founder and managing director at Valentis Advisors, tells Puneet Wadhwa in a telephonic conversation that they have been creating some cash recently to enable them to buy stocks cheaper in case of a market correction. Edited excerpts:

After a sharp run since March, do you expect the markets to undergo a time- and price-wise correction now?

Some positives have led to the rally. Firstly, interest rates are peaking in India as well as globally. Secondly, fears of a US recession have proved unfounded (at least so far).

In India, the economy has been robust, and earnings are growing in double digits. However, valuations are no longer in the fair-value zone, and hence we would expect a time and price correction over the next few months.

Returns in the market for 2023-24 (FY24) may have been front-ended, and a period of consolidation will be healthy for the markets.

What has been your investment strategy since the March lows?

In March, we were optimistic about the markets and highlighted that after 18 months of consolidation, valuations had become reasonable. However, the sharp rally has surprised us too.

Broadly, there were three themes that we explored. Firstly, buy local and avoid global, given that the Indian economy will be the fastest-growing in the world. Secondly, we prefer investment themes over consumption themes, given stretched valuations in the consumption space and faster earnings growth in the investment space. Lastly, we are playing sectors where margins were hit last year due to high commodity prices and where we see normalisation of margins this year.

We have been creating some cash recently to enable us to buy stocks cheaper if there is a correction in the markets.

Do you think calendar year 2023 (CY23) will eventually prove to be a forgettable year for equities as an asset class?

Calendar year 2022 was a year where both debt and equity struggled to give nominal returns, although Indian equities were one of the best-performing markets in the world.

CY23 will see all asset classes give much better returns, with a double-digit return possible in equities. With interest rates much higher than two years ago, debt returns are reasonable.

Sharp returns from long-duration debt are possible once interest rates start to get cut early next year.

Will the next few months be a stock picker’s market rather than one rising tide lifting all boats?

After a sharp rally, easy money has been made, and the next few months will be a period of consolidation. There are, of course, companies that are still cheap or whose earnings are growing strongly.

Investors would need to focus on the fundamentals to find such companies and avoid stocks that have gained momentum but are now overpriced.

What’s the Next Big Theme for markets that most investors haven’t latched on to yet?

One sector that has underperformed and is looking attractive to us is the US generics pharmaceutical (pharma) market. This sector has seen sharp erosion in generics pharma prices, which has led to falling profitability in US businesses. However, US generics prices are starting to plateau, and price erosion is now slowing down.

This could help show better earnings growth for pharma companies with exposure to the US generics market. This is one theme that investors have not yet appreciated, and the stocks have been large underperformers.

Your interpretation of the FY24 April-June quarter numbers and the road ahead.

We expect earnings growth for FY24 to be 12–15 per cent. While some sectors, like software, will be weak, earnings growth is likely to be more broad-based than in 2022-23 (FY23).

Banking will indeed be one sector with strong earnings growth in FY24. However, the contribution of banking to overall earnings growth will be much less than in FY23, with automotive and oil-marketing companies, too, showing strong growth.

What’s a good way to approach equities as an asset class for someone: a) who invested in January 2023; b) who wants to start building a portfolio now?

If we think of a more tactical deployment approach for someone who has just started building his portfolio, our thought is to stagger our buying over the next few months instead of investing everything in one go today. This will help keep some powder dry in case of a market correction.

Similarly, for someone who invested in January, if he is fully invested, tactically it may make sense to book profits for a small proportion of the portfolio and wait for a correction to buy again.