As Sensex, Nifty trade volatile, here’s market strategy for investors; ICICI Bank, SBI, L&T good bets

Even as Sensex and Nifty have recovered from the budget-day lows, the investors are recommended to adopt a strategy of buy on dips looking at the sharp surge in the past days, said an investor.

Even as Sensex and Nifty have recovered from the budget-day lows, the investors are recommended to adopt a strategy of buy on dips looking at the sharp surge in the past days, said an investor. SBI, ICICI Bank, L&T, APL Apollo Tubes, and United Spirits are among the few stocks that investors can consider anticipating recovery in broad-based economic activity, Devarsh Vakil, Head, Advisory (PCG), HDFC Securities, told Ashish Pandey of Financial Express Online. On gold, Devarsh Vakil said that the yellow metal prices are expected to consolidate in 2020 and the investors are not recommended to have over 5 per cent weight of the commodity in their portfolios.

Here are the excerpts of the interview:

Sensex and Nifty recovered the fall received on the budget day. However, when the companies are posting muted earnings, what’s driving the rally? Are markets rising just on optimism?

Till now, 37 Nifty companies registered 1.4% revenue growth while PAT increased 17% largely due to tax benefits. Overall, around 1000 companies reported its quarterly numbers, revenues increased by 2% while PAT grew 25% led by tax benefits. Early signs of economic recovery are already visible with Economic parameters like PMI and IIP are at multi-year highs. Markets discount the future well in advance and we believe our markets are factoring in earnings recovery along with strong global markets.

Which are the best stocks to invest in the current volatile market-scenario?

Financials are the leaders of the rally and we continue to like large banks like ICICI Bank and SBI. Anticipating recovery in broad-based economic activity we are recommending investors to accumulate engineering and infrastructure companies. We are gung ho on Largecap stocks like Ultratech Cement and L&T. From the Midcap universe, we have recommended stocks like Sudarshan Chemicals, APL Apollo Tubes, United Spirits to our investors.

What’s your near term outlook for Sensex and Nifty?

Nifty and Sensex have registered significant recovery post-budget and negated the bearish trend. The level of 11600 seems to have become the floor for the short term. Looking at the steep rise in recent days, it would be better to adopt a strategy of buy on dips.

Should investors increase allocation to mid and small caps?

For the Calendar Years 2018 and 2019, the Mid and the Small Cap indices have been gross underperformers. While the Nifty has gained 3% in 2018 and 12% in 2019, the Mid and the Small Caps have only given losses. Nifty Midcap and Small Cap 100 Index fell by 15% and 29% respectively in 2018. In the year 2019, they were down by 4% and 10% respectively. Two years of continuous and massive underperformance has resulted in valuations differences. Smaller stocks are now very attractive for any investor. One needs to be very diligent while dabbling in this space. In fact, our overweight stance on smaller stocks is already yielding results. Already in the CY20, Nifty is down by 0.25% while Nifty Midcap and Small cap Index are up by 7% each. The Nifty Smallcap Index has formed a bottom in August 2019 and the monthly advance-decline ratio has been positive for the last five months on the trot, after 2017. The investor should definitely increase allocation to the quality midcaps where earning growth visibility is high.

How is debt and gold as options for the investors now?

Gold prices have rallied nearly 25% in India in 2019 supported by risk-off sentiments on the US-China trade war. We expect gold prices to consolidate this year and do not recommend more than 5% weight to portfolios. If you are highly risk-averse, you should allocate 10% for gold.

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