Even as Indian equity markets increasingly face pressures from rising oil prices and weakening rupee as foreign investors flee, the upcoming quarterly corporate earnings and an expected generous monsoon promise to give further direction to the course of the Indian equities. The corporate earnings season begins next month with IT blue-chip Infosys announcing its first quarter (Q1) results of FY19 on July 13.
What’s more? Anita Gandhi, Whole Time Director, Arihant Capital Markets, is optimistic that if there is an upgrade in the forthcoming corporate earnings, India may start seeing the inflow of foreign funds again.
So far in the fiscal year 2018-2019, FIIs (Foreign Institutional Investors) have remained net sellers and have pulled out about Rs 14,500 crore from the domestic capital markets, putting substantial pressure on the rupee which hit an all-time low of 69.10 against US dollar on June 28.
Anita Gandhi shares her outlook on the Indian stock markets in an exclusive interview with Porisma P Gogoi of FE Online, suggesting investors to go for value buying as valuations in the stock markets are still expensive. Here are some edited excerpts.
The markets have fallen from their all-time highs made on January 29 and have not been able to recoup losses ever since. What is your outlook for the markets for the remaining year 2018?
Equity markets are generally six months ahead of the economy, as markets discount future. In the last six months, macro indicators like inflation, currency, current account deficit, oil prices have deteriorated and the same has been reflected in the indices. Trade wars and protectionism have added to some nervousness and volatility in the global markets as well.
However, India still is the fastest growing economy in the world and a big retail market globally. The rural economy is expected to do well with increase in MSPs. Having said that, job creation and good rainfall will be the key factors in deciding the outlook of the markets for the remaining year of 2018. Sufficient rainfall and robust job creation will lead the equity indices to the new high.
How has the performance of the foreign and domestic institutional investors been so far this year?
Domestic investments are still robust as money is flowing through SIPs (Systematic Investment Plan). FPIs (Foreign Portfolio Investment) are seen still selling in Indian markets as they continue to sell in other emerging economies. 10-year US bond yields have risen substantially and therefore money is attracted there. However, if we see any earnings upgrade happening in forthcoming result season, India may start seeing FPI inflows again.
In this volatile market scenario, what would be your choice of stocks or which sectors would you recommend investors to put their money into?
Since valuations are still a bit expensive, it is advisable to go for value buying at this juncture. Pharma has started showing some signs of reversal and stocks like Lupin and Natco Pharma still look interesting. Auto sector is still showing good monthly sales and M&M and Tata Motors look good for long-term investing. In the diversified space, there can be good value in Grasim for long-term investing. Cement stocks have corrected quite a lot and they can be looked at post-June results. In mid-cap IT stocks, Tata Elexi looks interesting as growth environment is still good for the company.
Going forward, what in your opinion would be the negative and positive triggers for the domestic markets? What should the investors watch out for?
A good monsoon and robust job creation are required for driving domestic markets. These two factors will take care of inflation and purchasing power of masses. Investors need to watch out for company-specific results if there is sustainability in earnings and are earnings likely to grow.
Domestic markets have digested the RBI rate hike in June as well as the US Fed rate hike. What should the markets expect in coming monetary policies? What do you think would be the reaction on future rate hikes?
Fed has already given guidance for further two rate hikes in the calendar year 2018. The RBI decision will depend upon inflation trajectory. In the last monetary policy, tough there was a rate hike, the tone of RBI was dovish, therefore markets took it positively. Going forward, if the rate hike continues, some amount of investments may get diverted to debt markets as well.
How would you say are the mid-caps and small-caps performing compared to the benchmark indices? Should investors invest more in these stocks?
Mid-caps and small-caps have underperformed to the benchmark indices. One needs to be stock specific in this space and invest in them only if earning expansion is seen in quarterly results.
This interview was originally published on 29 June 2018 on http://www.financialexpress.com