Opinion polls, by-election results to keep markets on edge till 2019: Edelweiss MF

Harshad Patwardhan, CIO Equity at Edelweiss Mutual Fund, feels it is safe to assume that there will be enough twists and turns over the next 12 months to keep market participants nervous. “Each opinion poll and every by-election result will be analysed endlessly to understand implications for 2019 elections.”

Excerpts from his exclusive interview with Moneycontrol’s Kshitij Anand:

Q) Twenty-one public sector banks (PSBs) have incurred losses totalling Rs 25,775 crore due to banking frauds in FY18. Will it be a wise decision to catch this falling knife?

A) The way things stand it is difficult to consider these banks as investable ideas from a fundamental perspective. It may be better to consider these stocks for investment (if at all) once the situation stabilises.

Q) Most results for the quarter-ended March are out. How do you rate the performance of India Inc in Q4?

A) Performance of Indian corporates, excluding public and private sector corporate banks, in Q4 FY18 has been in-line to a little better-than=expectations.

Q) Do you see headwinds for Modi government after the recently concluded Karnataka polls? How do you rate four years of the Modi government on a scale of 1 to 5 (5 being the best)?

A) As things stand today, it is prudent to assume that the outcome of 2019 elections is not given. It is safe to assume there will be enough twists and turns over the next 12 months to keep market participants nervous. Each opinion poll and every by-election result will be analysed endlessly to understand implications for 2019 elections. The current government took several important structural steps over the last four years that will make the Indian economy stronger over the medium to long-term. I will, therefore, rate its performance at 5.

Q) Do you think that after what happened in Karnataka, the Modi government will become populist in the run-up to general elections 2019? How are markets going to react?

A) After spending the first four years doing a lot of heavy lifting in terms of structural and tough decisions, we do believe its focus for the remaining term will be on more popular decisions.

In a way, it is expected and to that extent factored in. The task of the government will become tougher with potentially negative implications for the markets if oil prices remained high for the longer period.

Q) Mid and smallcap stocks have taken a beating in the last 2-3 months. Both the BSE Smallcap and Midcap indices are down on a year-to-date basis. What should investors do with stocks that have seen double-digit corrections s and is it impacting portfolio performance?

A) There is no standard answer to this question. It is not unusual that in this kind of market environment, many of these stocks have seen a double-digit correction. One needs to study each stock separately to find out whether it has corrected due to general weakness or whether there is any development pertaining to its business, industry etc. If it is a quality liquid stock down due to a market correction, then there is no need to overreact.

Q) Most funds based on the small & midcap theme are bleeding. What are you suggesting to your clients: hold them and continue with their systematic investor plans, add more money on dips or book profits?

A) Weakness in mid and smallcap stocks are bound to get reflected in the performance of these funds. If a fund has a portfolio of quality and liquid stocks and an investor has a medium to long term time horizon, then there is no need to panic and sell. Investors can consider continuing SIPs during this volatile period to actually benefit from it.

Q) What is your call on crude oil, and where is it headed by December 2018? Do you think high crude prices will make aviation, oil marketing company and tyre stocks slightly unfavourable?

A There are so many variables that influence oil prices. It is hazardous to guess exactly where they may be headed. High oil prices will clearly have an impact on sectors mentioned above. However, one must remember that in some of these sectors it is possible to pass on some of the cost increases to customers.

Q) Do you think we will have a normal monsoon in 2018? What will be its impact on sectors?

A) Weather forecasts that have been published so far suggest we are likely to have a normal monsoon this year. A normal monsoon will have a positive impact on agriculture-related sectors such as tractors, etc. It will help improve demand in rural areas which in turn will assist consumer companies.

Q) Flows into mutual funds have slowed. Is the domestic inflow story coming to an end?A) Domestic inflows are just about starting. Due to volatility in markets, it may have slowed a bit, but are we confident that domestic inflows will only get bigger in the medium to long-term.