The market is already discounting a good earnings cycle in FY18 and any let up in the same will lead to a correction in the equity markets, Rakesh Tarway – Research Head – Reliance Securities, said in an exclusive interview with Kshitij Anand of Moneycontrol.
Geopolitical tensions, especially emanating from North Korea, weighed on the D-Street as well as global markets. Do you think this is just a knee-jerk reaction? Is there a chance of a deeper correction if it escalates?
Geopolitical tensions have always caused undesired volatility. But, over the last decade or so, short-lived geopolitical tensions have given an entry opportunity to investors.
Unless the market believes that tensions with respect to North Korea are going to escalate to a full-time war in the immediate to short term, any negative volatility caused by it will provide a good correction for investors.
June quarter results failed to lift investors’ sentiment. When do you see a recovery in earnings on D-Street? The recovery is seen as the next big trigger which could lead the next leg of the rally. Do you agree?
We have witnessed flat to negative earnings growth on an aggregate basis for the corporate sector. This is based on the declared results by major listed companies during the first quarter of the current financial year.
Companies’ sales and margins were both hit by de-stocking ahead of GST implementation from July 1, 2017, which lead to a suboptimal performance on both top and bottom line.
The market expects earnings to recover in the ensuing festival season during the third quarter of current fiscal. Prices are already discounting a good earnings cycle in FY18. Therefore, any let up in the same will lead to a correction in equity markets.
Any top five stocks you feel that are a good buy, but markets may have overlooked them?
We don’t believe that at the highest valuation multiples, where broader markets are currently trading at, there are many companies which markets have ignored.
As a firm, we do not actively track small-caps. We certainly believe that sectors like HFCs (housing finance companies), autos, small cement companies, financial services firms will keep doing well in the current cycle.
How should investors plan their investments when markets are doing 1 step forward and 2 steps behind? Does it make sense to hold cash at current levels and deploy when some clarity emerges?
Indian retail investors’ assets in equity markets are limited at an aggregate level even after an unprecedented surge in mutual fund inflows during the current calendar year as well as during the last one.
The empirical past data suggests that equity over a long run is the only sustainable way to beat inflation. Therefore, investors should be following the path of regular time period investments in equity markets rather than following one-time bulk investment route.
First-time investors, should utilize these corrections to initiate exposure to equity markets.
The market rally has already got many stumped. India is one of the best-performing markets globally. What are the reasons which you attribute for the current outperformance which will remain valid for the future as well?
Equity markets are driven by a multitude of factors and not limited to expectations on earnings, the flow of domestic as well as foreign liquidity, geopolitical stability and general economic outlook.
India is witnessing robust liquidity flows both from global as well as domestic players. On the other hand, growth in Indian corporate earnings has been subdued at single digit levels for the last 5 years till FY17.
We saw some early green shoots for revival in earnings growth during FY17. The expectation of good earnings growth, high domestic liquidity and global rally in equity markets led India to all time high indices.
Intermittent corrections are part and parcel of any rally in equity markets. We believe, after correction broader markets have become healthier and will follow earnings growth from here.
FIIs turned net sellers in August? What is causing such massive drawdowns from equities?
FIIs have purchased equities worth more than Rs 50,000 crore before August in this calendar year. In August, they sold Rs 12,000 crore of equities.
This should not be construed as a massive draw down from equities. FIIs outflow in August can be attributed to multiple factors like high valuation in India, geopolitical tensions in the region related to China, general risk off etc.
We believe that stable interest rates, improving growth in India, reduced geopolitical tensions will keep FIIs inflow at robust levels in India for medium to long term.