5 sectors that could be safe havens for your funds in the medium term

With the market touching historic highs on a daily basis, Jimeet Modi, CEO and Founder at Samco Securities, feels investors should look at state-run banks, realty, pharmaceuticals, cement and oil marketing companies for the medium term.

Speaking on an ideal portfolio set up, Modi said an investor can park 40 percent of one’s portfolio in bonds, 30 percent in largecaps, 15 percent in smallcaps and 15 percent in midcaps for appropriate diversification.

On midcaps, he cautioned investors to stick to quality companies with good fundamentals and ethical management.

Edited excerpts

Q: Indian markets created history in July and the momentum continued in August as well. How are you reading the breakout which happened in July?

A: Despite some global challenges, the breakout in the Nifty and Sensex last month was mainly because the largecaps pulled the market higher. The quarterly results are cheering the market in terms of growth expectations and hence the rally. However, there is a lot of euphoria built-up in the markets and there seems to be a higher probability of a correction soon. But, when this happens only time will tell.

Q: Is the peak similar to 2008, which did not last long? We are heading towards a crucial election year. Does it require investors to be cautious at current levels?

A: Since this is a crucial year of politics, investors must remain cautious as there would be high volatility in the markets. Since the divergence between the large and small/midcaps is wide, there can be a correction sometime in the near future. However, the exact time cannot be ascertained.

Q: Any anecdotal evidence which suggests that the rally is here to stay or could we see a big sell-off in the near future?

A: As the euphoric rally was a fractured one due to global as well as domestic headwinds, we seem to be in the 5th wave in terms of the Elliott Wave Theory. As per the theory, we are experiencing a large divergence in the breadth of the market and any significant trigger might create a big sell-off in the near future.

As per statistics, only 54 percent of the total stocks are trading above their 200-day daily moving average (DMAs), which is the second lowest in a decade. During the 2008 top, 52 percent of stocks traded above their 200 DMAs. This further confirms the 5th wave theory.

Q: Any top 5 risks which the Indian market may face in the next 12 months?

A: In 2018, politics is the biggest risk which can turn the markets in any direction. Other macro risks are growing inflation, rate hikes by the Reserve Bank of India, Brent crude fluctuations which can impact the currency and last but not the least trade wars. With the US being the largest economy, any significant impact on our imports and exports will affect our widening current account deficit.

Q: Amid historic highs, which sectors are likely to hog the limelight? Have you spotted any safe avenues for investors to park their money?

A: Sectors such as state-run banks, realty, pharmaceuticals, cement and oil marketing companies are likely to hog the limelight this year from a medium term point of view.

Q: What should be the ideal portfolio contribution (in terms of percentage) for investors at a time when markets are trading at record highs, assuming the investor is in the age bracket of 30-40 years?

A: At a time when the markets are trading at record highs, one can have 40 percent of one's portfolio in bonds, 30 percent in largecaps, 15 percent in smallcaps and 15 percent in midcaps for appropriate diversification.

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: Since the start of 2018, midcaps have experienced tremendous pressure and have spiralled down drastically. As they lagged the largecap rally it seems to be more likely that the midcaps will rebound in line with broader markets. However, one must look at quality companies with good fundamentals and ethical management before investing.