India is in the toughest market seen in a while, said Axis Securities’ Chief Investment Officer, Naveen Kulkarni. However, he recommended that investors make the most of this correction to accumulate good quality stocks and stay greedy in a bad market to make money. Here are edited excerpts from Naveen Kulkarni’s interview with Shaleen Agrawal of FinancialExpress.com.
Outlook for the Indian stock market
Naveen Kulkarni’s outlook is fairly straightforward, being that this is the toughest market seen in a while. In the past, market corrections have been accompanied with a reasonably high degree of volatility. However, according to him, this market is seeing low volatility and still is correcting, which means there’s an adjustment happening with other asset classes like debt. It’s unlikely to see a runaway market, instead it will focus on earnings growth and global cues. The correction is likely to continue for the next three to six months, following which, it is very likely that the market will see a return of 10-12% in the second half of FY24.
Has the market correction come to an end?
The ongoing correction isn’t a new phenomenon. While markets touched highs in November 2022, it was similar to the October 2021 peak. In 2021, FIIs bought in excess of $35 billion, but have net sold $20 billion in 2022, said Kulkarni. This means the correction has been ongoing for a year and half. Also in 2021, we were in an expensive market, trading close to two standard deviations over the mean, however, now, we’re slightly above, but much closer to the mean, making it a more reasonable market. The corrective phase depends on how close the interest rate cycle is to peaking. Once the rates have peaked, we should be closer to the end of the correction as the market will bottom out. “My prediction is that interest rates will go down in the second half of FY24 and that’s when markets will rise,” he added.
Should investors wait for the corrective phase to end before investing?
This is the time to invest, especially since markets move fast, slow moving markets are a rarity. Kulkarni suggested investors use this to build up a portfolio, since getting quality stocks at a reasonable valuation is difficult. “When you’re greedy in a bad market, you’re very, very likely to make money,” he said, adding, “When you’re greedy in a good market, you’re most likely to lose money.” When you need to be greedy and when you need to be fearful determines when you make money. If you’re fearful now, you won’t make money.
Sectors to find value in
There’s a wide range of sectors to look at, said Kulkarni. He recommended investors make the most of the reasonable valuations in the banking segment, specially focussing on HDFC Bank and SBI that are high-quality stocks. He also is bullish on automobiles and auto ancillaries along with the industrial sector as a result of the global supply side challenges and domestic capex boom. Lastly, he suggests investors could also look at the consumption basket, ranging from ITC to hotels, which can make a good amount in the next 12 or so months.
View on ITC
“ITC has a chance to see a 25% upside from current levels,” said Kulkarni. He said the stock is still quite cheap, and is likely to see consistent earnings growth in the next four quarters, has strong dividend yield, cash flows, governance and return ratios, which are all ingredients to make it one of the best stocks to own in Indian equities.
