While NSE Nifty 50 advances by leaps and bounds towards scaling the crucial level of 10,000 points for the first time ever, stretching valuations and raising concerns over the sustainability in the rally, several market experts continue to be bullish on further prospects in the Indian equity markets. Yogesh Nagaonkar, Fund Manager, Bonanza PMS, which overseas Rs 150 crore in assets under management, recommends buying midcap banking stocks, but suggests staying away from information technology and pharmaceutical companies given those sectors’ fundamental troubles. In an interview with FE Online, Nagaonkar shares his investment ideas amid a bullish equity market. Here are the excerpts:
Q. Sensex/Nifty have run up quite a bit this year. Should investors be cautious now on further investments into the equity markets?
A. No, there is no apparent cause for concern. We are bullish. Markets are looking very good. On FY19 forward earnings, markets are still trading at 16 times. Good quality companies will continue to attract higher valuations.
Q. So, should investors invest more into Indian equities?
A. Absolutely. They should invest on long term basis.
Q. Often, markets start reversal when retail investors jump in. We have seen it number of times in stock markets history. What could convince retail investors to get into the markets now, and that this time their money will remain safe?
A. There has to be strategy if you want to invest. You have to invest some portion of investments now, and if markets correct one can average at lower level. Also one must invest with a minimum of one-year time period.
Q. Which are the sectors on which you are most bullish?
A. Banking sector will do well, given the government thrust on resolving their NPA problems and fixing their balance sheets. I feel midcap banks will do well.
Q. What are the sectors on which you are most bearish?
A. Information Technology, Pharmaceutical and Banking have not performed well over the last one year, while other sectors have performed well. We are still underweight on IT and Pharma. With Pharmaceutical companies, there are USFDA regulatory issues, and the revenue growth will be little on lower side. Whereas IT has serious growth issues.
Q. You said investors should buy into good quality companies. Which companies do you have in mind? Which companies are you buying?
A. DCB bank, Lakshmi Vilas Bank, Shankara Building Products, Au Small Finance Bank, DHFL.
Q. Which blue-chip companies are you avoiding right now?
A. Blue chips in Pharma and IT space are all avoid for me.
Q. What is your outlook for the markets in the long term?
A. There are good days ahead for India for the next 10-15 years. If you look back 10-15 years, an entire emerging markets pack started rising, including Russia, Brazil, China and others. Today, only India stands out, whereas the other countries are not doing so well. This means India has done something right in these 10-15 years. We have been talking to companies, and many are doubling their capacities. Everyone seems to be investing in building up capacities. A lot of capital expenditure is now coming in. Clearly, there is a lot of growth ahead.
Q. Could there be any challenges to the markets from macro-economic factors?
A. We don’t see any macro concerns. Though there could be some political pressures from situations such as the standoff between India and China. Overseas as well, there’s a growing clamour on Brexit, with a lot of other countries too pushing for it. That could weigh on the markets a little, but overall, we are nicely placed in a very sweet spot. There was a time in the past when the Indian stock market danced to the global tunes. However, in the last few years it has decoupled from western markets. Liquidity is very high, and that is driving Indian markets.
Q. Could there be any challenges from the implementation of GST?
A. There is nothing bothering us on that front. Most of the companies that we have been talking to have said that GST is good for them as it would help wipe out the unorganised sector. Most companies in the listed space, which are fair in their businesses and have been paying taxes are happy. It is those who do not want to pay taxes are making noises.
Q. Have their been any major troubles in the last 10 days of GST?
A. Companies that we have been talking to haven’t experienced any major challenges in moving to the new system. They have had a lot of time to prepare for it — more than 8-9 months, since it became clear last year that GST would be implemented from April.