In an interview with ETMarkets, Kapoor said: “The market breadth, volatility indicators and earnings trend continue to point to the strength of the structural bull market but corrections will be a part of this move” Edited excerpts:
We have seen a dream run on D-St with Sensex hitting 67000 and Nifty50 heading towards the 20,000 mark. Is this too good to be true and we are running ahead of fundamentals?
Currently, we find ourselves in a prolonged period of bullish market conditions, but the recent surge in prices has led to inflated valuations.The Nifty index is now trading at more than 22.5 times its trailing earnings. Given this situation, it might be prudent to adopt a staggered approach when making new equity purchases and consider waiting for potential corrections to add to our equity exposure.
The market breadth, volatility indicators, and earnings trend continue to point to the strength of the structural bull market but corrections will be a part of this move.
We expect consolidation and correction to bring valuations to palatable levels.
Small & midcap spaces have also been doing well. China plus factor as well as the fall in raw material price supported the sentiment. How should one play this theme?
Small and midcap stocks have experienced a robust rally, and their earnings trend is showing signs of improvement.Concerns about the financial health of smaller firms after the COVID-19 disruption were prominent. However, there has been a gradual recovery in the balance sheets of these companies.
In terms of valuations, small-cap stocks are relatively more favorable not only in India but also on a global scale.
By remaining cautious about overpaying and maintaining a focus on respecting valuations, small and midcap stocks present attractive opportunities for the upcoming years.
Sector(s) which you think could get re-rated and why?
We see opportunities in commodity consumers like auto, selected consumer durables, non-discretionary consumption and the BFSI sector including NBFCs.
US generics and pharma appear to have an attractive margin of safety and are placed for better growth prospects.
What is going on with the IT sector? Large cap vs midcap IT which space offers more room on the upside?
Western economies, such as the US and EU, have demonstrated resilience, especially in the services sector, which has managed to avoid a sharp downturn for the time being.
However, there are clear indications that the services sector in the US and other regions may experience a gradual slowdown. Recently reported financial results of Indian IT firms also reflect a cautious outlook for the current financial year.
Furthermore, the rally in the IT index has once again pushed the valuations of these firms over 1-standard deviation away from their long-term averages.
Consequently, it would be prudent to adopt a wait-and-watch approach for this sector. If there is a price correction, there may be some attractive long-term opportunities in the next few quarters.
The home building space has attracted some attention recently with companies like Polycab and Havells in focus. What are your views?
There is some froth building up in this space with multiples stretched to multi-year highs. It would be prudent to respect valuations and wait for better entry points in this industry subgroup.
Markets are at record highs and we see some consolidation – things that investors should avoid doing and keep in mind.
Investors should look to stagger equity purchase and also look to diversify across assets. There are attractive opportunities present, for instance, in Gold and various equity sectors which appear to be better placed for valuations.
What is your call on global equities vis-à-vis India?
Global equities aren’t moving in a synchronous cycle and hence many countries are at different market and economic phases. Countries like Brazil and Taiwan appear attractive based on their valuation while technology in US appears pricey.
Indian equities have so far delivered excellent earnings growth vis-à-vis the many global peers and hence are commanding premium valuations.
But it is prudent to utilize correction in Indian markets to add to equity exposure. A mix of domestic and selected global opportunities should be utilized to build a long-term portfolio.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
