Expect a cool-off in markets from present level: Vaibhav Sanghavi, Avendus Capital Alternate

There will be some amount of healthy correction but I do not see a larger or a deep correction from here, Vaibhav Sanghavi, Co-chief Executive Officer, Avendus Capital Alternate, tells ET Now.

Edited excerpts:

What is your view on the markets at this point of time? September has started on a decent note. Once again, we are seeing resilience in the broader end of the market. While approaching the market at a point of time like this, what would be your strategy and what would be your advice to investors out there?

Markets have rallied from about 10,600 or 10,700 to about 11,700 within a very short period of time. It has been a fantastic move till now. Having said that, you need to understand why it has happened because of both global and local reasons and the likely effect of going forward in terms of how it is likely to pan out.

As for local reasons, one of the dominant reasons has been that earnings have been pretty much as per expectations and two, the macroeconomic numbers have been pretty strong. At the same time, globally, we have seen a huge amount of realignment in terms of emerging market portfolios in favour of India.

All in all, it has helped to have a pretty decent rally over last couple of months. Going forward from here, we do see that the markets are richly valued both on an absolute and relative sense vis-à-vis the other markets. There is a likelihood of some amount of cool- off from the current levels, notwithstanding that in the three-five-year period, one remains pretty bullish.

At this point of time the macros are looking stable. GDP number are good, inflation numbers are steady. There is good monsoons, GST is playing out smartly, corporate earnings have rebounded very smartly. Do you believe that the Indian equity is in a very favourable situation and any downtick would be triggered by global factors?

There are too many moving parts out there in the global scenario, in terms of what is happening to China vis-à-vis trade talks, withdrawal of quantitative easing (QE) and higher interest rates from US as well. It is pretty difficult to get a hang of those kind of variables. Some amount of volatility would be seen in different spaces of asset classes globally.

As you rightly mentioned, looking at the strong macros, I do not see a larger or a deep correction from here. There will be some amount of healthy correction after a strong rally over the last two months. A buy on dips is a good strategy to go with in the markets from these levels as well.

In your note, you have mentioned that the IT sector is slowly making a comeback. What is your view going forward and are you optimistic midcap names in terms of future growth prospects or is it the blue chip ones?

In IT we have been fairly bullish since last September-October. There are multi-fold reasons for that. One, the currency is pretty much in favour at this point in time but at the same time, since global growth is improving, we believe there would be higher expenditure in technology space. The natural beneficiaries of that would be our Indian IT outsourcing companies.

Having said that, we also believe that only those companies which have an ability to move up the value chain in terms of the service being offered are the ones who will be able to get those kind of secular opportunities going forward.

We are very fairly focussed on those kind of companies where innovation is essential part of their own DNA as well. I believe that is a good opportunity going forward even from these levels as well.