Even as Sensex and Nifty see volatility after the budget, sectors such as consumption, chemicals, private banks, and FMCG may provide a buying opportunity, an investment manager said.
Even as Sensex and Nifty see volatility after the budget, sectors such as consumption, chemicals, private banks, and FMCG may provide a good buying opportunity, an investment manager said. Mahanagar Gas, Abbott Labs, ICICI Bank, HCL Tech and Kotak Bank, are among those stocks that are expected to be good bets, Yogesh Nagaonkar, CEO, Rowan Capital Advisors, told Shaleen Agrawal of Financial Express Online. Further sharing his views on expected risks going ahead, Yogesh Nagaonkar said that the outbreak of Coronavirus along with macroeconomic measures announced by the government may negatively impact stocks in the coming days.
Here are edited excerpts of the interview:
Sensex, Nifty have recovered all the post-Budget losses. Have investors missed a good buying opportunity?
Yes, I feel. Well, I feel that there was buying opportunity far more before the budget i.e. last year, when the markets especially Nifty where around 10,000 Levels, ideally that would have been the best time to buy, but having said that no one knows the exact tops and bottoms in the market, so one must buy good quality businesses at inexpensive valuations. Currently, still, there are good opportunities in the market which one can look at buying and which can easily provide 25% returns in the next one year.
What is your view on the current valuation of Sensex/Nifty indices, and Sensex/Nifty stocks?
Currently, markets both NSE and BSE are moderately valued; Nifty on a price to earnings (p/e) trailing basis is trading at 25.7 times as on February 2020 far lower than what it was in June 2019 where it was trading at around 29.25 times. Last 2 years the Nifty index has been trading around 25 to 30 times range, so currently, we are at the lower end of the last 2 years range. Also on a P/B basis nifty is trading around 3.28 times which is again a moderate range.
Should investors buy large-cap/Sensex/Nifty stocks at this point?
I will advise that investors should always make a multi-cap portfolio, which includes large, mid, small companies in a proportion that they are comfortable with. Last 2 years we have seen a huge rally in large Cap; Most of the large-cap is trading at the upper band of the historic valuations, we expect large Cap Companies, where the earnings cycle is intact and valuations are reasonable and not too bloated with Debt, we feel those companies will continue to do well. We advise investing in large caps going forward at current prices.
Should investors buy small-mid-cap stocks? Which ones?
Small and Midcap should form a part of one’s portfolio, but how much percentage of the portfolio should be allocated to Small and Midcap companies needs to be assessed by individuals as per his risk profile. One should now start accumulating good companies in this space where the promoter quality is good and choose companies that are growing at more than 15% rate. Also, Low debt and reasonable valuation is something one should look at while investing in small and midcap companies. ROIC (Return on incremental capital) and dilution of equity or raising of debt by a company in the past should be analyzed before buying into such companies. We also feel that one should not chase Value stocks in mid and large-cap space, We feel that if one strictly sticks to Quality and super Quality in this space then one will make a decent amount of money despite such stocks being higher valuations
Which kind of sectors/stocks offer good buying opportunities now after the budget? Why?
Post budget following sectors look good: 1. Consumption.2. Chemicals.3.Private banks.4 FMCG 5. Private Insurance companies; also we like Medical services industries, Gas companies, and pharmaceutical industries. Some of the companies that we like in Mid and small-cap space are Mahanagar gas, Abbott labs, Divis Labs, Dr Lal Pathlabs, JB chemical, Bata India, and DCB bank and in the large-cap space, ICICI Lombard, ICICI bank, HCL technologies, and Kotak bank.
What is the timeframe that investors must keep in mind now while entering a) large cap stocks b) small-mid-cap stocks?
We usually recommend to our clients that if you can invest money for 3 years, then only one must invest in Equities to generate returns higher than any other asset class. So typically Small and Midcap /Large cap should have an investment horizon of 3 -4 years. Moreover, entry and exits in Mid and small-cap stocks should be planned meticulously, to maximize returns.
What are the risks to your recommendations?
The risk to our recommendation remains the outbreak of coronavirus, substantial macroeconomic measures announced by the government may adversely impact the stocks.
Do you see some dips in the near future which may offer buying opportunities?
Don’t see any big dips in the market as the liquidity in the market is very high, there has been FII and DII buying seen in the market. There will be profit booking which will allow investors to average or re-enter the market at lower levels. I would like to reiterate that if the earnings cycle is intact in the small and midcap companies then we foresee no major fall in the markets going forward.
Should investors take more exposure to equities, or other assets, or keep cash in the portfolio at this time?
I feel depending on once risk appetite one can employ the following 3 strategies,1. People should go all guns out and take a 100% exposure to equity with Large-cap as the bulk of the portfolio and followed by mid and small companies 2. Some conservative investors might keep 20% cash in reserve which might be utilized during any fall in the market. 3. Highly conservative Investors can deploy the investable amount over a 6 months period, by doing an equal amount SIP over 6 months.
Disclaimer: The interviewee or his clients may have positions in the stocks mentioned in the above article