Growth-oriented stocks and sectors will do well going ahead, and hence, shifting from highly valued stocks and sectors is advisable, says Satish R Menon, executive director at Geojit Financial Services in conversation with Swati Verma. Edited excerpts:
Equity benchmarks are near all-time peaks but only a handful of stocks have lifted the market higher. The Reserve Bank of India (RBI) also surprised in its last review of the monetary policy. What is your take on these developments?
The economy has been in the slow lane for the last two years. Still, we had enough liquidity in the market which was flowing to stable and high quality stocks and sectors. This polarised market will get broader as the economy improves in the financial year 20-21 (FY21). Regarding the RBI’s decision, we are not much concerned about it since it is episodic in nature. It is a well thought out decision. That said, we expect two more rate cuts in the calendar year 2020 (CY20) to support economic growth.
Are you comfortable with the market valuation? Where do you see Nifty by March-end?
Valuations are high and can impact the market performance in the short-term. This skewed valuation will get broader in the coming years. We have a one-year target of 12,600 for Nifty50.
Equity flows slipped to over three-year-low in November. Your take? Do you think investors are rational in pulling out their money from equities?
It is a short-term reaction on the part of investors as key indices have reached all-time high. We don't expect it to impact the flow of funds in the long-term, as growth comes back led by cyclical factors and supportive measures. In our view, it is a good time to invest in value, cyclical and growth stocks for strong gains in the next two-three years.
Karvy Broking case has caused quite a stir. What is your take on the entire fiasco?
It has triggered safety and operational issues in the minds of investors about the integrity of intermediary service providers. From now on, retail investors will prefer ethical and value providers than just considering the cost of services in the future. It is a one off case and the whole industry should not be judged based on such episodes.
What are your earnings estimates for Nifty50 companies by FY20?
We expect earnings per share (EPS) of Rs 566 on Nifty50 index, which is 15 per cent up on a YoY basis led by cut in corporate tax, better numbers from banking sector (due to lower provisioning and improvement in asset quality) and expansion in EBITDA margin due to lower raw material cost for non-financial corporates.
Your overweight and underweight sectors.
We are overweight banking, chemical, energy, agri and export-oriented stocks and sectors. We have upgraded metals from underweight to neutral. We are underweight fast moving consumer goods (FMCG), telecom and pharma.
So, what’s your advice to investors?
We anticipate a better economy in the coming years and suggest increasing exposure in value and cyclical sectors in CY20. We also expect mid-and small-caps to outperform in the long-term. Growth-oriented stocks and sectors will do well. Shifting from highly valued stocks and sectors is advisable.
Should retail investors invest in Bharat Bond ETF?
For retail investors, Bharat Bond ETF presents an opportunity to invest in an array of PSU bonds in a single investment. This gives diversification benefit and lower risk. It is good for those looking for long-term tax efficient returns compared to traditional investments. The bond also provides long-term indexation benefit and is the most cost efficient ETF in the industry with an expense ratio of 0.0005 per cent.