DAILY VOICE | Depreciation of US dollar could add further inflows in SAMVAT 2077: Umesh Mehta

Depreciation of the US dollar could add further inflows towards emerging markets. All in all, Samvat 2077 is expected to be a good one, Umesh Mehta, Head of Research, Samco Group said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) A volatile week for Indian markets. Fresh record highs in the run-up to Diwali, then some mild profit-taking in the second half of the week. What led to the price action?

A) The market remained in a good mood throughout the week. The week began with hopes of a vaccine and markets quickly reacted taking bourses to new highs, however, with no sight of the timeline for vaccine availability in India, bulls calmed down.

Additionally, an anticipated increase in India’s weight in the emerging market index from December further added to the rally. FPIs have aggressively invested in the markets in November, however, there could be a breather in the inflows which led to the price correction mid-week.

Volatility and volumes have also been low towards the second half of the week after the excessive inflows of over Rs 30,000 crore by FPIs this month.

Metal and banking stocks led the rally while IT lagged the pack. Cumulatively, it was a mixed week majorly led by macro factors.

Q) Small & midcaps underperform in the week gone by. What is your outlook on the broader market? Does it look like FIIs favoured quality largecaps more than mid and smallcaps? What are your views?

A) Currently, Indian markets are highly polarized with the majority of the international money flowing into large caps. However, for the momentum to sustain going ahead there has to be a trickle-down of capital towards the broader markets.

Mid and small caps have been depressed for a couple of years now and as earnings continue to pick up, small and mid-cap prices will also rise.

Investors should start picking up quality mid and small caps to ride the unfolding rally and reap the benefits of growth investing.

Q) What is the outlook for markets for the coming week? Any important data to watch out that is likely to impact the sentiment?

A) The coming week is a short one for D-Street and indices could remain in a tight range and experience short corrections after a massive rally last week.

Any surprises in global markets will mainly guide Indian equities since quarterly results back home are at its fag end. Immediate support and resistance for Nifty is now placed at 12400 and 12800 respectively.

Q) What is your outlook on markets for SAMVAT 2077?

A) Samvat 2077 is expected to witness fresh highs with a good rally which would be a lot less polarized. Stock-specific moves could be expected for the next two quarters but once earnings pick up and demand revives there could be a decent move in broader indices.

With excess liquidity in the system, interest rates at record lows and fresh stimulus close to 15 percent of GDP till date by the Government, investments are expected to rise in Indian equities.

Also, a depreciation of the US dollar could add further inflows towards emerging markets. All in all, Samvat 2077 is expected to be a good one.

Q) Which sectors are likely to hog the limelight in SAMVAT 2077 and why?

A) Pharma and Agriculture could be the leading outperformers of Samvat 2077 aided by metals and realty stocks. Metals and real estate could be good picks to play the inflation game.

Pharma stocks were constant underperformers the past few years due to US pricing pressure and therefore there could be a lot of growth potential in these bets.

Government incentives and subsidies can aid the new cycle in the agriculture space which contributes a major chunk to India’s GDP.

Private sector banks post some correction would also be good investment bets in the short term but a re-run of the banking bull cycle seems less dicey the next year.