Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd., said that FPI inflows into Indian equity markets may dwindle following quantitative easing tapering by the Federal Reserve.

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Chouhan has over 24 years of experience in the areas covering Equity Research & Derivatives Research. He is associated with Kotak Securities for the last 19 years. Currently, he is the Head of Equity Research (Retail) and also heads the team of Fundamental and Technical Research Team.

 

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In an interview with Zeebiz's Kshitij Anand, Chouhan said that it is advisable to stay with blue-chip stocks.  Let the new entrants prove their track record for the next couple of quarters. Edited excerpts:-

Q) We have seen a fast and furious rally in September as Nifty moves closer towards 18000 and Sensex inches near 59000 levels. What are your views on markets? 

A) Markets continued their upward trajectory on expectations of strong medium-term growth and abating inflation risks. After witnessing a brief halt last month, BSE Midcap and BSE Smallcap resumed their upward journey. 

Majority of the sectoral indices remained in the green. BSE Bankex and BSE Auto outperformed the broader markets with gains of ~3% in the week gone by.

On the economy side, India’s August CPI inflation moderated to 5.3% (June 5.59%). During this week, the government announcements included approval of PLI schemes for some sectors and guarantee to back security receipts issued by National Asset Reconstruction Company Limited for acquiring stressed loans. 

On the global front, U.K. inflation soared to a nine-year high in August. The Federal Reserve will kick off a two-day meeting on Sep 21, and the global markets will be watching for an update of their bond-buying program.

Not only investors but even positional traders are following the strategy of buy on dips and that’s the reason the market is finding support at major levels of the market.  In the near term, 17300 would be a major support for Nifty, and there we should look for buying opportunities in the market. On the higher side, until the market is not crossing 17800, we would see range-bound consolidation. Above the levels of 17800, the Nifty would rally to a minimum of 18000 and a maximum of 18300 levels. 

Q) Telecom sector has been in the limelight in the week gone by. What is your view on the sector, impact of the PLI scheme, and what should investors do?

A) The telecom sector was in the limelight on the back of government policy measures, which are targeted to maintain industry structure (3+1 or 2+2) in the medium term. The government’s aim to maintain industry structure is clear now, we expect the operators to expedite tariff hikes and compete on other fronts to gain and retain subscribers. We reiterate BUY on Bharti Airtel.

Q) Most of the global markets have done well in 2021 – Where do you see India with respect to global peers? Is Indian market getting overheated or is there still value that could attract global investors?

A) Interestingly, all emerging markets have seen FPI inflows in Sep 2021 till date. Notably, inflows in Taiwan, India, South Korea, Thailand, Indonesia and Philippines are positive to the tune of $2,597 million, $904 million, $535 million, $290 million, $162 million and $71 million, respectively.

We believe FPI inflows into Indian equity markets may dwindle following quantitative easing tapering by the Federal Reserve. In general, rate hike by the US Federal Reserve leads to FPIs exiting emerging markets such as India that are considered riskier than developed economies. Broadly, Indian markets are going to continue their upward trajectory on expectations of strong medium-term growth and abating inflation risks.

Q) PLI scheme in the auto sector is likely to favour companies that are EV focused. Is it a good time to accumulate auto companies? Are there certain stocks that are likely to benefit the most?

A) The current PLI looks to be a promising roadmap to promote the electric vehicle segment. The government has laid out a strong foundation for rapid adoption of EVs in India by providing attractive incentives. While some auto OEM and auto ancillary would likely benefit from the PLI scheme, it would be difficult to quantify the benefits at this point in time. The auto industry is currently facing near term headwinds like semiconductor shortage (in certain segments) and raw material cost increase. From a medium to long, we expect the performance to improve for the auto industry. Key beneficiaries in the auto component space will be mostly global MNCs such as Bosch, Continental, Delphi Automotive, Denso Corporation. In our coverage universe, Minda Industries, Endurance Technologies, Varroc Engineering and Schaeffler India can benefit from this scheme.

Q) What should be the ideal portfolio strategy at a time when there are new age IPOs entering stock markets? Should one go for them or  stick with popular bluechip stocks?

A) It is advisable to stay with blue-chip stocks.  Let the new entrants prove their track record for the next couple of quarters.  Yes, we may certainly try for listing gains as most of the new issues are entering the market with reasonable valuations.

Q) Which sector could turn out to be a dark horse in FY22?

A) FY 22 will remain the toughest year to forecast under the uncertainties related to interest rates, stimulus rollback and a higher base for corporate earnings. However, we would like to be in the technology sector with a medium to long term view. Fundamentally, we feel it has more stability and visibility as compared to other sectors.

Q) What is your investment philosophy? Has your holding in cash increased amid the recent run up to be deployed later?

A) Our investment philosophy is to stay invested in the stock and debt markets until any major event closes on a negative note.

Q) What is your call on small & midcaps? Do you see a rotation trade happening from broader markets to largecaps?

A) While looking at the inflation numbers and corporate earnings of large-cap companies as well as their contribution to new capex, we are of the view that the market trend is intact and we should be buyers in select small/midcap stocks with a medium to long term view.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)