‘Nifty shouldn’t go below 11,000 anytime soon; avoid debt funds for now’

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Bulls markets are always born on pessimism and there is enough of it on the street today. However, this bull market has been quite selective in that as it is only rewarding those companies that are demonstrating earnings growth visibility, Prabhakar Kudva, Director, Samvitti Capital, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q: Do you think investors have got reasons such as the deteriorating macroeconomy and the NBFC crisis to sell into this market? What is the bottom you are seeing for this market?

A: Bulls markets are always born on pessimism and there is enough of it on the street today. However, this bull market has been quite selective in that as it is only rewarding those companies that are demonstrating earnings growth visibility. It is not willing to pay up for hope. In that sense, I don’t think the valuation for the broad markets is expensive.

It is hard to put a number for a bottom, but if I have to guess, I don’t think Nifty should go below 11,000 anytime soon.

Q: Do you think the RBI should have done more in its policy meeting to push growth and investment in the Indian economy?

A: Yes, given the risks to growth and the persistently low inflation, the market possibly expected more from the policy than just a 25 bps cut.

However, it’s encouraging to see the MPC change its stance from neutral to accommodative, which is reflective of more cuts this year.

It is equally important that these rate cuts gets transmitted by the banks to the end consumers for them to have any meaningful impact.

Q: How safe are debt funds now amid rising concerns from IL&FS and DHFL fiasco, which could push investors away for some time now?

A: As was evident with the NPA crisis, these things take a lot of time to play out completely. So, I wouldn’t rush into corporate debt funds.

Incremental flows should move into liquid funds or FDs-the overall return may be a little lower but investors can sleep better-which is an important metric as far as we are concerned.

Also, it’s important to note that the risk in a corporate debt fund is asymmetric, i.e., while the return can only be 100-200 bps higher, the risks are disproportionately larger.

Q: Do you feel that the broader market could outperform and if yes, then why?

A: I wouldn’t categorise the stocks as large, mid or smallcaps. A better way to look at it is to see which companies are growing and are likely to continue to grow and take away market share and do that with high RoCE.

This formula can never go out of fashion. During bull markets, anything and everything including all market caps goes up, but for the foreseeable future in the absence of large liquidity, I think earnings growth, quality, and predictability will trump across market caps.

Q: If an investor in the age bracket of 30-40 years plans to invest Rs 10 lakh via mutual funds route, what would be your advice in terms of portfolio allocations?

A: It really depends on the individual risk profile and their current asset allocation. Assuming he is a first-time investor, I would stick broadly to largecaps via index funds.

I would also do an STP into it over the next 1-2 months than invest it all at once. As always this is just indicative and one should speak to their financial advisor before investing.

Q: Do you think the auto sector could emerge as a dark horse in the next 12-24 months?

A: The auto sector was hit primarily by the liquidity crisis and non-availability of funding among a few other reasons like BS VI and election-related uncertainties.

This should get sorted out over the next couple of quarters. I am sure there is a reversion to mean at play here, but beyond that, given that this industry is at the cusp of disruption, the valuations could remain under check.

Q: How are we placed among emerging market peers?

A: With China slowing down and being on the crosshairs of the US, India is the only large bastion of growth. This is evident from the number of foreign direct investments coming into India over the last couple of years whether it’s Walmart or Amazon or Unilever.

Even from an FII point of view, the incremental flows may find favour in India than in China for the reasons mentioned above. So the potential for a much larger FII allocation definitely exists.

We only need to increase our capacity to absorb such capital by providing a predictable and business-friendly policy regime. I think we are slowly but surely getting there.

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