“Whenever crises have hit the Indian equity market, they have always given an excellent investing opportunity. Be it the Harshad Mehta crisis in 1992, the Southeast Asian Crisis in 1995-96, the Y2K boom-and-bust in 2000, the Global Financial Crisis in 2008 or the Taper Tantrum Crisis in 2013,” says Dr Mohit Batra, Founder and CEO – MarketsMojo.
In an interview with ETMarkets, Batra, said: “Given the Indian equity market’s corrections and behavior, there is a perfect opportunity for the Indian equity market to do well going forward. We expect Sensex to hit 1.25 lakhs by April 2027 and Nifty at 37000” Edited excerpts:
What is your view on markets for the short to medium term?
Since October 2021, the market has been through ups and downs. However, if you try to understand the reasons behind what pulled it down, we can appreciate how it could move forward.
India has been the best-performing market since April 2020, and several investors, especially FIIs, began locking in profits. At the same time, given the US economy’s performance, it was expected that the US Fed would hike the interest rate.
As a result, FIIs believed they could have a run on the local emerging market economy. Hence, thinking that the rupee would depreciate, they tried to lock in the profits.
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Secondly, the global supply chain issue came to the forefront with the Ukrainian-Russian war. The situation further aggravated, pushing up the price of crude oil.
However, all the factors have now been done with. FII-selling seems to be at their last phase as they have sold more than Rs. 2.5 lakh crores, with their overall holding in India Inc., coming down to a multi-year low.
Hence, there seems no further scope for FIIs to sell further. As far as the rupee is concerned, we believe it has hit the bottom of 80, and there would be no further downside for it to go below.
The causes that pushed factors like inflation, crude oil prices, and metal prices have all begun to retreat. So, commodity prices will become soft as we advance, benefiting the Indian economy.
Since India is the biggest importer of commodities, a price softening will push down India’s inflation rate. So, while on the one hand US, UK, and other leading economies are witnessing inflation inching up, India’s inflation will start moving downward. In that case, the RBI may not be as aggressive as was perceived a couple of months ago.
Hence, RBI’s interest rate hike could be a maximum of 1 or 2 in the coming few monetary policies.
Therefore, we believe Indian markets may perform exceptionally well in the short to medium term. We also believe that the risk-reward ratio has gone in favor of reward.
What is leading to weakness in the currency and where is it headed?
While it’s true that the Indian currency has depreciated against the dollar, our currency has appreciated against many developed countries’ currency like the Euro, Pound, and Japanese Yen. The reason the rupee has depreciated against the US dollar is due to:
• Heavy FIIs selling
• The surge in crude oil prices causing India to spend more US dollars to buy the same quantity of crude.
But as mentioned above, FIIs selling is over and crude price coming down makes us believe there is not much scope for the rupee to depreciate from Rs 80.
We would not be surprised if the Indian rupee appreciates against the US dollar in the next 12 months.
Sectors that are likely to benefit or be impacted the most from rupee depreciation and why?
Whenever the rupee depreciates, it benefits exports and impacts import sectors. The Indian IT sector should do reasonably well because exports are denominated in US dollar terms for most currencies.
So, if the rupee depreciates, they will receive the benefits. However, the advantage will not immediately come through as it will take time for a few IT companies to reflect the same in their bottom line.
FIIs seem to be on a selling spree although the quantum might have come down. Is it the global realignment that is happening or there are other reasons for the FII selloff?
FII-selling seems to be in their last phase as they have sold more than Rs. 2.5 lakh crores, with their overall holding in India Inc., coming down to a multi-year low. Hence, there is no further scope for FIIs to sell further.
What are your views on the earnings declared by India Inc.? IT earnings were more or less mixed bag, do you see a similar pattern for other sectors as well?
We believe India Inc. will do well compared to other corporations worldwide. However, the IT sector has been a bit of a mixed bag.
There will be some pockets, but overall, we believe the Indian economy should stay upbeat, reflected by robust GST collections.
Hence, we don’t see much downside regarding India Inc.’s earnings for FY 2023. So, the first quarter could be a mixed bag, but the second half of FY2023 for India Inc. should do well.
It feels like we are in a perfect storm – Sri Lankan crisis, Ukraine-Russia war, rupee depreciation, FII selloff, and not to forget boiling crude. Have you seen so many variables in the past and do you see this as a wealth-creating opportunity if someone has 5 years or more?
Whenever crises have hit the Indian equity market, they have always given an excellent investing opportunity. Be it the Harshad Mehta crisis in 1992, the Southeast Asian Crisis in 1995-96, the Y2K boom-and-bust in 2000, the Global Financial Crisis in 2008 or the Taper Tantrum Crisis in 2013.
On every one of these uncertain occasions, the Indian market presented an excellent investment opportunity.
Given the Indian equity market’s corrections and behavior, there is a perfect opportunity for the Indian equity market to do well going forward. We expect Sensex to hit 1.25 lakhs by April 2027 and Nifty at 37000.
What would you advise to an investors whose portfolio is down say 40% in value and only has laggards? How should one manage such a situation?
We strongly believe that the leaders of the next rally may not be the leaders of the previous rally. Hence, they could be a laggard. It is a good time for investors to reshuffle their portfolios; this would do away with their recency bias.
We firmly believe that a few sectors, such as banking and finance, will not likely participate in the next rally.
And therefore, if an investor’s portfolio is down by 40% in terms of value terms, I believe it is time for them to reshuffle their portfolio. Instead of having a past winner, they need to look for a future winner.
One needs to refresh their portfolio in a situation like this. Most investors fall for the classic ‘get out’ syndrome when their portfolios are down, and as we know, with close to 100% accuracy, that may be the best time to invest more and get ready for the next wave.
Does it require discipline and logical thinking of what comes after a 40% fall? The answer is fairly simple, given we have the patience to give time now.
If someone in their 20’s wants to create a portfolio, should they bet on small & midcaps as Nifty50 companies are already matured in their businesses and growth models? What is the right way to look at the asset allocation mix?
We strongly believe that one should adopt a balanced portfolio approach rather than stock approach. Also, one should never take investment decisions based on the market cap but on the growth potential the company offers.
We have seen even large-cap companies giving bountiful returns. Yet, in the same breath, we have seen small caps underperforming large caps.
Ultimately, it’s all about stock selection. We believe one must have the right mix of the large, mid and smallcaps as part of their portfolio. Instead of adopting a stock-specific approach, we believe in constructing a balanced portfolio — which should have near-about 40-50% large caps, 20-30% midcaps, and 20-30% smallcaps.
If a young investor invests for a minimum of 5 years, they may be able to outperform the benchmark significantly.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)