Do you suppose there could possibly be a consolidation in the market earlier than the subsequent significant upmove begins?
We had an important rally in the broader market during the last one yr. The smallcap index is up greater than 100% and the midcap index is up 90%. The frontline indices (Nifty and Sensex) are up about 60%. We are coming into into a brand new revenue cycle however one shouldn’t overlook that this time the demand restoration could possibly be extra gradual in nature.
Our sense is that the June quarter might see a downgrade in earnings. There have been huge earnings surprises in the final three quarters however there are indications that consumption will take time to recuperate. The second factor is that when you have a look at the final two-three quarters, margins have been a significant shock. That led to earnings development throughout company India. Today commodity costs are going via the roof. That might hit margins of most corporates in India. I believe that’s not being factored in by the Street. So over the subsequent few months, we might get a greater entry worth level in the market.
Do you suppose that the rally in midcaps and smallcaps has extra steam left?
If the economic system begins to come back again on a development path and the federal government begins executing its plans, then the rally in the broader market could have extra legs in the subsequent 3-4 years. But in the close to time period, one has to have the abdomen to digest the volatility which is able to come alongside the way in which. I don’t suppose individuals ought to get complacent. It is essential to make take care of asset allocation and the danger you might be carrying in your portfolios.
Which are the group of stocks the place you suppose that it’s time to exit now?
We are getting a bit anxious about stocks the place the valuations have turn into too wealthy and the returns have been front-ended. Those stocks could also be in the electronics or shopper durables sector the place the long term below penetration story stays robust however there are headwinds in the close to time period.
Chemical stocks is one other space the place we’re not including a lot incrementally. Five years in the past, this was one of crucial themes in our portfolio. From single-digit PE multiples, the valuations have now moved to nearly 30 to 35 instances. We imagine that there’s a little margin of safety proper now.