Even as the Indian stock market reacts to the crucial Karnataka elections, Rahul Jain of Edelweiss says that Sensex and Nifty will remain volatile in the rest of the year too given macro factors such as rising crude oil prices. According to him, the currently strong earnings trend will continue even in the coming quarters, while rising global interest rates and oil prices could weigh. In an interview with Sushruth Sunder and Shaleen Agrawal of FE Online, Rahul Jain, Head – Personal wealth Advisory, Edelweiss shares his views on the stock market outlook, upside and downside triggers, and top stocks investors can look to invest in. Here are the edited excerpts.
Are you seeing some interesting trends in the wealth advisory business? What is an appropriate asset allocation mix for young investors? (Age 20-30)
An interesting trend we have observed over the last few years is that a lot of millennials are approaching us for advice. This can be attributed to heightened awareness about need for financial planning given rising income levels. There are three important factors to consider while preparing an asset allocation mix- age, ability and willingness to take risk (risk appetite). A 20-30 year old person can look to invest up to 60-65% in equity.
What is your view on the short-term outlook for stock markets?
The stock market will remain volatile on the back of factors such as rising crude oil prices and rising global interest rates. In the current quarter, the earnings have been strong, and we expect this trend to continue. While the micros look good, the macros are not as attractive as they were, say, two years ago. The exports have slowed leading to widening of fiscal deficit. Two years back we had a different problem- the macros were good, but the earnings recovery wasn’t happening. We believe that the pain related to GST and demonetization is now behind us. In the long-term we believe that equities can provide 15-20% annualized returns. In case of debt, the annual expected returns are around 9%.
What stocks can investors look to invest in the current scenario?
We are bullish on stocks in infrastructure, rural and FMCG given robust economic growth outlook. India, currently a ~ $2.5 trillion economy is expected to grow to a $5 trillion economy in the next 10 years. If that has to happen, the potential for infra is tremendous. In the large-cap space we like stocks such as Kotak Mahindra Bank, L&T (well positioned to gain if prices rationalize in the industry going forward). In the infrastructure space, we like names such as Phillips Carbon Black and Dilip Buildcon. These stocks will benefit from an infrastructure boom.
How should the retail investor approach the stock markets?
As retail investors may not have the resources to track the fundamentals of a stock closely, they can approach the markets through mutual funds. Investors must look to identify businesses with strong execution capabilities.
Has the introduction of LTCG tax on equities materially impacted the stock markets?
LTCG tax will not have any material impact on the stock market in FY19, as investors who wanted to pull out would have done so before 1st April 2018. There could be some strategies to minimize outflows, but those will not have any material impact on the stock market.