Will Sensex, Nifty repeat Nov rally this month? Share market at all-time high; rebalance portfolio | INTERVIEW

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Updated: December 10, 2020 7:05 PM

The amount of time and effort which an investor puts in trying to time the market instead should be utilized towards identifying companies with strong fundamentals.

Sensex, Nifty, portfolio rebalancingFor the upcoming initial public offers, Ved advised investors to evaluate each company on its merit

With BSE Sensex and Nifty 50 riding at all-time high levels, investors have an opportunity to get out of the stocks with weak fundamentals and invest in companies of high quality, said Hiren Ved — Director, CEO and CIO, Alchemy Capital Management. In an interaction with Surbhi Jain of Financial Express Online, Ved said that investors put in a lot of effort to time the market, which in his opinion should be utilised for identifying companies with strong fundamentals. For the upcoming initial public offers, Ved advised investors to evaluate each company on its merit rather than investing for short-term listing gains. Here are edited excerpts from the interview.

Equities are at all-time highs, should investors rebalance their portfolio?

Our past experience tells us that it is very difficult to time the market. For instance, Nifty went to 7500 in late March and in a span of 9 months, we are at all-time highs. Similarly, over the last four years, equity markets in India have had no shortage of disruptions and uncertainties — demonetization, GST, IL&FS crisis, bank failures, elections, etc and yet markets have scaled the wall of worries. In fact, the amount of time and effort which an investor puts in trying to time the market instead should be utilized towards identifying companies with strong fundamentals which have withstood the test of time. Bull markets provide investors the perfect opportunity to redeem their past mistakes by getting out of stocks with weak fundamentals (low RoCE, negative cash flows, corporate governance issues) and investing in high quality companies.

Over half a dozen companies plan to launch IPO this month, what should be investors’ strategy?

In a bull market, there tends to be a frenzy for IPOs as the stock can give handsome returns on the day of listing itself. Our advice to investors would be to evaluate each company on its merit rather than just invest in an IPO for short-term listing gains.

What are your underweight and overweight sectors?

In the current environment, we are balanced across domestically correlated sectors like Financials, Consumer Discretionary and Autos but we also have exposure to global facing sectors like Pharma and IT. We are underweight on metals and commodity oriented sectors as we don’t invest in them but we expect these sectors to do well in short to medium term.

Post auto sales number for November, what trends do you see?

 Passenger vehicles and two-wheelers have been doing well ever since the economy started opening up due to increased demand for personal mobility. However, what is heartening is that we are seeing some signs of recovery in the commercial vehicles segment. This is important as MHCV sales are a good barometer of underlying economic activity.

With so much developments on COVID-19 vaccine, is it time to hold pharma stocks?

What one needs to appreciate is that Pharma by nature is a counter cyclical industry. The Pharma companies in India cater to a large domestic market of USD20bn+. They also have a large presence in the USD60bn+ generic market in the US. In fact in volume terms Indian companies cater to 40% of the US generic market. A few Indian pharma companies also have good exposure to Europe as well as emerging markets such as Brazil, Russia & China. Many large pharma companies are in the process of transitioning from pure generic plays to Speciality plays in the important generic market of the US. For this leading Indian generic pharma companies have invested a lot in research & development at around 8-10% of sales in the last 5 years. Along with it one has a large domestic market which tends to grow at 10% pa.

Another great opportunity for Indian Pharma companies is in the Global (Custom Development & Manufacturing) CDMO space. The CDMO market is expected to be USD 158bn by 2025 from USD 100bn in 2019 and is estimated to grow at 7%, with certain sub-segments such as biologics expected to continue growing in the low teens. To summarize, pharma is an industry with a steady base demand and lots of avenues for growth as far as leading Indian pharma companies are concerned.

Sensex, Nifty rallied 12% in November, what do you expect from Indian share market in December?

In November, we saw that FIIs pumped in US$8bn in Indian equities. This is the highest ever flow which India has received in a month and largely explains the rally which we saw in November. In fact, the Nifty is up 80% from the lows which we saw in March. After such a sharp rally, it is quite possible we could have a small correction. However, one should not be overly puttered by such intermittent correction although some correction in the short-term is very much possible. However, one should not miss the forest for the trees. Although nascent, there are some large macro shifts taking place both globally and in India. After a long time, we are seeing the dollar weakening, and the US current account deficit widening. Which bodes well for EM equities. If EMs do well, India will continue to get its share of passive flows. Moreover, it does seem that our country is at the cusp of a new growth cycle.

There is a clear impetus by the government on manufacturing, cost of capital has come down significantly and the health of the financial system looks far better than what it has been in the last five years. Notwithstanding the near-term gyrations, we continue to remain positive on markets from a medium to long term horizon.

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