Large foreign fund outflows unlikely, strong economy could help midcap earnings | INTERVIEW

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March 27, 2021 2:42 PM

FII pulling out may be short term effects, however, the markets have learnt to live with this volatility over the longer term and do not see any reason to worry.

stock market, share marketA year ago, the nifty mid-cap index was quoting at around 20% discount to the nifty 50 index. (Image: REUTERS)

After flooding domestic markets with funds for 10 of the 12 months of this fiscal year, Foreign Institutional Investors (FII) have slowed the quantum of inflows this month. Could this pose a challenge for Dalal Street and could FIIs turn net sellers in 2021? V Srivatsa, Executive Vice President & Fund Manager –Equity, UTI Mutual Fund, does not think so. In an interview with Kshitij Bhargava of Financial Express Online, the fund manager said that India continues to be in focus among emerging markets for most FII while he ruled out any major selling by FIIs. Here are the edited excerpts.

Are you concerned about Foreign Investors pulling out the money they have invested in India this fiscal year? 

FII pulling out may be short term effects, however, the markets have learnt to live with this volatility over the longer term and do not see any reason to worry about this. India continues to be in focus among emerging markets for most FIIs, while they could play tactical trades, over the longer time we do not see a major impact of any sell down.  

A lot has been said about Midcap and Smallcap stocks; how do you feel about them? Is there an opportunity here? 

A year back, the nifty mid-cap index was quoting at around 20% discount to the nifty 50 index which has now converted to a premium of around 10% given the sharp outperformance of the mid-cap stocks. This has happened as last year we were in the midst of the covid crisis and sentiments and liquidity was poor which reflected in the discount of the mid-cap index to the nifty 50. While the change in the economic outlook has led to the premium reverting to the heights seen in FY18. We do see the premium sustaining on the back of a strong recovery in the economy which would lead to better earnings surprises in the mid-cap stocks. 

In the case of rising bond yields, do you think investors could switch from largecaps in such a scenario? 
As said earlier, there does not seem to be any relative attractiveness of mid-cap as a class to outperform the large-cap on a valuation basis, however, there could be stock specific or sector-specific opportunities that can be capitalized upon.  

We have a lot of activity in term of IPOs recently. Do you think this has had any effect on liquidity in the market? 

 The rise in the markets is always accompanied by a slew of public issues as companies try to cash on the rising markets. However, we do not see any mega-sized issue which can suck away liquidity and also the current issues are from the new age industries which will broaden the markets and positive for the long term. 

Nifty Pharma is down 10% from the middle of January, is a good enough correction to get back into pharma stocks? 

We continue to be positive on the pharma sector as the longer-term growth prospects remain very good and while the valuation has rerated from the lows last year, they still continue to be reasonable with respect to the growth prospects and high-quality business that this sector offers. The sector has come from a period of pain in both domestic and export markets and we see a reversion to long term growth in both segments.  

What space are you most bullish on for the upcoming fiscal year? 

We remain positive on the domestic economic recovery and believe that capital goods, infrastructure, real estate, corporate-oriented banks and automobiles offer very proxy to play this theme.  

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