Coalitions have run the country between 1989 and 2014. The market thinks the defeat of the no-confidence motion in the Lok Sabha on July 6 was the turning point.
The defeat of the No-confidence motion in the Lok Sabha on the July 6 was the turning point. The market now believes a majority (single-party) government will be sworn in 2019, VK Sharma, Head - PCG & Capital Market Strategy, HDFC Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Excerpts:
Q: Indian markets created history in July and the momentum carried forward in August as well. Both Sensex and Nifty touched fresh milestones despite global headwinds. How are you reading the breakout?
A: This is a genuine breakout and has come in despite international as well as Global headwinds. There is nothing new in this. The markets, in general, like to climb a wall of worries and that is what it has done.
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Let me first take the international issue of trade wars. Fortunately for us, trade wars are not accelerating. EU and the U.S. have found some common ground.
Efforts are on to find similar ground with other trade partners. While a large part of this is posturing, we believe midway could be found.
In the unlikely event of an intense trade war, global trade would slow and India would also be impacted. But, we will be impacted less as only 14 percent of our GDP is accounted for by exports.
A positive side-effect of this would be that crude prices will also fall in a slowing world. Our relative performance would be even better.
Q: Is the peak similar to the 2008 peak which did not last long? We are heading towards a crucial election year. Does it require investors to be cautious at current levels?
A: The January 2008 Nifty peak of 6,357 was the culmination of a rally that began in March 2003 after the path-breaking budget by Jaswant Singh of the then NDA government, who exempted long-term capital gains from income tax of the trade in BSE 500 stocks.
It was a long rally of five years that saw the Nifty and Sensex multiply seven times. While it is difficult to see clearly whether this rally is of the same caliber, we believe there is no reason to suspect this rally either.
As far as the elections are concerned. We don’t think they are any issues. Even in May 2004, when UPA came to power with the help of the left, the markets tanked 17 percent in two days but recouped all their losses in the next 90 days and the markets gave a return of 50 percent in a year from there. So what are we afraid of?
Coalitions have run the country between 1989 and 2014. I think the defeat of the no-confidence motion in the Lok Sabha on July 6 was the turning point. The market now believes a single-party government will be sworn in 2019.
Q: Any anecdotal evidence which suggests that the rally is here to stay or we could see a big selloff in near future?
A: One big feature of this rally that stands out like a sore thumb is the fact that NSE Small Cap Index made a new 52-week low on July 16, the very next session of July 13, when the Sensex touched a new high.
This was purely on account of the technical reasons like regulatory changes in mutual funds, additional margins and compulsory delivery in illiquid F&O stocks.
With retail money chasing large caps, the Sensex and Nifty, later on, touched new highs. This is no flash in the pan. Powering this rally is the SIP money flowing into MFs to the extent of Rs 7,550 crore that came in last month.
Q: Any top 5 risks which India market face in the next 12 months?
A: Risks will always be part and parcel of the Equity markets. If you take away the risks, the gains will also have to make an exit. At any point of time, there are numerous risks. With the passage of time, these change.
Among the bigger risks that India's faces are from 1. Crude oil, 2. Currency 3. Fiscal deficit 4. Rising interest rates, and 5. Political and trade developments
Amid historic highs, which sectors are likely to hog the limelight and is safe for investors to park their money?
A: 1. Retail facing private banks
2. Insurance Sector
3. Asset Management Companies
4. FMCG
5. Pharma
Q: What should be the ideal portfolio contribution (in terms of percentage) of investors especially at a time when markets are trading at record highs? Assuming the investor is in the age bracket of 30-40 years.
A: Banking 30%
Insurance 10%
Asset management companies 10%
FMCG 20%
Pharma 15%
Entertainment, Internet, Retail 15%
Q: What is your call on midcaps now? Do you think they are worth a look now as momentum should also get into the broader market?
A: The mid and small caps have been flushed down the drain together by the MFs. Some have sold for margin reasons.
Value and money cannot be separated for long. Ideally, small cap MFs and PMS’s should have taken the lead. But they are the ones who have borne the brunt. Expect these excesses to be corrected in a quarter.
Mid-caps and small caps would require careful screening. If the large-caps continue to inch higher, the mid-caps would follow.