Investors Should Rather Use Corrective Phases As Opportunities To Get Into Businesses: Religare Broking's Gurpreet Sidana
Your thoughts on valuations as they stand today? As we overpriced? Are two years of growth solidly priced in meaning that investors should aim for a more risk-off approach concerning their asset allocation?
Markets Considering, the Indian market, Nifty is trading at a stretched valuation (PE of ~24x), we believe investors should be cautious at this stage as some consolidation is warranted. We feel that consolidation should be considered as an opportunity to invest further in equities. Overall, we would suggest investors keep a check on asset allocation.
What about the new age, loss-making company IPO's? We saw Nykaa doubling on debut, PB Fintech and Zomato putting up stellar performances. How do you read this never seen before trend?
The primary market is gaining strength largely because of momentum in secondary markets as well as the overwhelming response from investors. Investors are keen to invest in new-age IPOs with the motive of not missing out on any opportunity and earning strong listing gains. In the case above, Nykaa, PB fintech, and Zomato were listed at a premium but Paytm failed to meet expectations.
These companies cannot be valued by traditional methods and investors should try and understand the sector in which they operate, their strategy & future growth prospects. Also, they should analyze their market share (gaining or losing) and financial trend for cues.
What's your take on corporate earnings? Have we peaked out for the medium term or do you expect the uptrend to continue?
The Q2FY22 earnings remained mixed. At one end, revenue across sectors saw strong growth however margins were severely impacted due to higher input cost inflation and increase in expenses. Sectors like IT, select banking stocks, oil & gas, reported stellar performance.
From the medium to long term perspective, we expect overall earnings to revive further largely led by a recovery in the economy, improvement in demand, product mix, and capacity expansion. Besides, to protect margins, companies plan to take price hikes as well as continue with cost-saving measures.
What themes or sectors are you particularly bullish on for the next 3-5 years and why?
We believe banks and IT could be the potential outperformers. IT has seen strong growth momentum and it will continue for the next 3-5 years led by increased cloud adoption and digitization. For banks, they have been resilient despite the pandemic with stable asset quality. Moreover, economic recovery-led loan growth would lead banks to grow faster. Apart from these packs, PSUs as a theme we believe would do well on account of increased focus on efficiency and disinvestment but one needs to be selective in this space.
What about Crypto? Everyone seems to love it, but nobody seems to understand it. Is there a hard landing in store?
Excess liquidity coupled with strong returns has led to increased investor interest in cryptos. While the underlying technology is promising, the unprecedented volatility is not tough to handle. Participants should know their risk well before making any bet.
Any parting words of wisdom for equity investors during this pivotal juncture?
Markets have not seen any meaningful correction since March 2020 so it is natural for the markets to see bouts of correction. Instead of blaming markets, participants should have a clear investment and trading plan in place to handle those corrective phases. Investors should rather use corrective phases as opportunities to get into businesses that not only have good fundamentals but have promising long-term growth prospects.
