It’s too late for the investors to take money off the table as stock markets might bottom in the next 4 weeks, Sandip Sabharwal, investment advisor, said, adding that it doesn’t make sense to exit now. In an interview with Surbhi Jain of FinancialExpress.com, Sabharwal also said that investors should wait before making new investments as things could become cheaper by another 10-15 per cent. From the current levels, there could be more downside on cards as analysts have not completely factored in the impact of high inflation, high interest rates and a possible slowdown in growth in their estimates. Sandip Sabharwal expects the risk reward to turn favorable around the 15000 level of NSE Nifty 50. Here are the edited excerpts from the interview.
How long do you think FIIs selling is likely to continue?
Foreign investors selling has to be seen in the context of the huge flow of money into risky assets, especially equities and cryptocurrencies last year which was higher than the total of the previous 20 years. In this context investors are hugely overweight equities in their asset allocation. Now as interest rates are moving up the valuations need to decline and at some stage fixed income or bonds become attractive for investors who shifted into equities just because of TINA. (There is no alternative). Current global outflow out of equities is just 20% of what came in last year itself. As such till valuations remain high outflows might continue and peak off over the next few weeks. When risk reward turns favorable over the next few weeks we should see the funds flow reverse.
2. Nifty valuation slides below five-year average, what do you make of this?
Valuations have two parts: the price and the earnings. The fall below 5 year averages is assuming that there will be a particular level of earnings growth which might not play out as interest rates rise and earnings growth estimates get cut. So this needs to be evaluated dynamically. In any case in bullish moves there is an overshoot and in bearish moves there is always an undershoot. Investors need to wait for the undershoot before buying aggressively.
3. Amid current market scenario should investors stay invested or take money off the table?
For investors who remained hugely overweight equities, it’s now too late to exit as markets might bottom in the next 4 weeks and as such it doesn’t make sense to exit now. For new investments they should wait as things could become cheaper by another 10-15%.
4. Where do you see BSE Sensex, NSE Nifty 50, and Nifty Bank in near to medium term?
At around 15000 levels of the NSE Nifty 50, the risk reward will start turning favorable and the good levels to allocate higher will be near to 14500 levels. Subsequently we will see markets claw back slowly as that will set the base for much higher markets over the next 3-5 years.
5. Has the selling pressure abated or is there more downside in markets?
There should be more downside as analysts have not completely factored in the impact of high inflation, high interest rates and a possible slowdown in growth in their estimates. The key is that given the way inflation is globally, interest rates will not only go up but stay up for a prolonged period of time and that could become challenging for growth. Inflation is the key variable to watch.
6. What are the key sectors in focus?
Commodity sectors should be avoided now and users of commodities i.e. Autos, Capital Goods etc will do well as the markets bottom. Financial sector will also do well and select consumer stocks could also become attractive.