It’s time to realign portfolio; start to accumulate good businesses: Devang Mehta
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Synopsis
“BFSI as a sector looks very interesting and particularly private sector banks like HDFC, Kotak, Axis Bank and ICICI Bank are capex oriented plays. We are seeing numbers of all of these companies coming out with flying colours. So. one needs to increase SIPs in equities, maybe also into banking SIPs if somebody is a little more of risk-taker but at least increase their banking allocation into their portfolios.”
What we are making out from the composition of the market at this point is that the entire world is readjusting repricing debt as well as equity. We know that we are going through the earning season, which so far has actually been good to the surprise of a lot of participants. The numbers have been good. The management commentaries have not been as dismal as they were expected. There were price hikes which were taken across the table.
If one talks about global and Indian macros, while one week back things were looking brighter, but with interest rates on the rise in the US which the markets knew and also in India, the rate hike ahead of the policy in June signalled that somewhere down the line, inflation is hitting us.
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So, what should HNIs or retail investors or even a lot of people who are interested in Indian equities do? It is time to realign the portfolios. A lot of cyclicals have done well. Again I am not suggesting that they sell off every cyclical, but probably the time is such that the valuation readjustment and the pricing that has come for a lot of blue chips, the so-called market leaders and emerging market leaders is getting better day by day.
Stocks Recommendations
Rather than the numbers, the Street is more or less contemplating how the management commentary pans out. Most importantly on the semiconductor shortage that we all had experienced and was the talk of the town in the last six to nine months and how that has affected the prospects of not only Tata Motors but other companies as well.
The most important part is that the India business, which was not much of weightage a couple of years back, is now gaining momentum. The electrical vehicles (EVs), the Nexon which has created the revolution in terms of every third car sold in India is Tata Motors electric vehicle. My sense is that the India business would carry some weightage and how it pans out or how the EV trends are emerging in India that is also one monitorable. The numbers may not not upset the street much, but the commentary would make or mar the prospects.
Of course kabhi khushi kabhi gam is the trend in the market and the khushi lasted a little longer the two, two-and-a-half years. Everybody was sort of happy and merry making good money. Did I take something off the table? Yes, but, nobody knew that the market will fall this way and right now, the Nifty has fallen by 12%.
The carnage has happened in the broader markets as well as in the bluest of blue chips and that is worrying a lot of investors. Our investors, which belong to an HNI segment, are still sitting with a lot of cash which they want to deploy. Nobody is doubting the so-called India story over the longer term. It seems there is a roadblock on the way. It is a speed-breaker of a fall which the market is experiencing.
We are telling our clients that if you have money parked ideally, please put it and this is the time when one should keep the faith and conviction going. As I said, one can be wrong for six or nine months, but probably in two or three years, good businesses will create good sort of wealth. So it is all about compounded annual growth rate, CAGR returns rather than linear returns and equity never gives those sort of linear returns.
If you do not have cash, probably ride this sort of volatility and that is where one needs to realign portfolios. If you were in cyclicals, get out of certain cyclicals, get into companies which are correcting, get into businesses like banking, insurance which are going through a big turmoil at this point. Top lines are growing and bottom lines are not growing, banks have shown good results. Building materials again as a contra buy. If you buy these three-four sectors in the portfolio and just keep the faith and conviction going, things will probably be good, if not in FY22, then probably in FY23 and FY24.
Is it a good time for SIP investors to start allocations or increase allocations to banking funds? Also, for the cash market investor, the retail janta out there who are directly investing in the market, where within banks would you find opportunities to buy right now?
Tips are only given to waiters and authentic, scientific investment advice is given to investors. Coming back to the point, yes, one should continue doing SIPs whether it is the only method in which you average out your investments and invest in this type of market.
In fact, I will go one step ahead and say that you should probably increase a little momentum in your SIPs if you can. This is not for retail, but for people who can afford to put it in at this point. We like banks at this point not only because in the higher interest environment, banks benefit a lot. So, in the first phase, they benefit a lot. Look at credit growth, you look at lending growth, you look at capex which is probably going to come in India.
I think banks will be the biggest proxy play if somebody wants to play capex. Now should one do SIPs in a banking fund? The answer is a little difficult to give because we have never been fans of a sector fund or one sector per se. But if one has a portfolio of direct businesses, direct equities, one should invest more into banks, insurance companies and intermediaries.
BFSI as a sector looks very interesting and particularly private sector banks like HDFC, Kotak, Axis Bank and ICICI Bank are capex oriented plays. We are seeing numbers of all of these companies coming out with flying colours. So. one needs to increase SIPs in equities, maybe also into banking SIPs if somebody is a little more of risk-taker but at least increase their banking allocation into their portfolios.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)