market correction: Macro looks solid for India, but external shocks are driving volatility: Sandip Sabharwal

Do you think there was just a reason waiting in the offing for markets to profit take and could this get a little more deep from here?
Sandip Sabharwal: The last point you made is very relevant because markets rallied so much after 7th April when they bottomed and most markets are at 52-week highs. So, small triggers can create corrective moves and that is what could play out in the near term.

Now, it is an evolving situation in the Middle East, so very tough to predict which way it will go. But history of such conflicts has shown that eventually they settle down, things settle down fast and then markets come back rapidly, so that is something we need to watch out for. But then, it also depends on the length of the conflict and the extent to which it grows, so that is something we need to watch out for and next three-four days will show us where exactly it is going and so some correction after the strong up move was imminent. So, the causes very often are unknown because on the macro front after the monetary policy, things internally were looking all good for India but external factors obviously have an impact.But if one really has to go by the history, so give us some sense that since you say that history does indicate that all these things settle in and the markets also stabilise in some time from now, so which sectors do you believe one should really eye and given an opportunity to maybe buy on dips, then which are your preferred sectors?
Sandip Sabharwal: Domestic oriented sectors, sectors which benefit from easier monetary policy like financials or industrials, capital goods, infrastructure companies, these will continue to remain preferred bets. On the auto side also, we will wait for this rare earth magnet issue to resolve. If and when it gets resolved, that sector is also pretty well placed. In the near term, whenever such uncertainty grows, normally the defensive sectors could do better. So, in the near term we could see pharma, FMCG kind of stocks, sectors outperform.

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I am curious to know whether you would profit take anywhere, should the fall in the market get aggravated?
Sandip Sabharwal: Profit taking has to be at a time when you think that the upsides could be limited from here and you do not see positivity growing. So, it will be stock specific, like for example, when crude was falling and fuel prices were not cutting, we took short-term bet on OMCs which we exited and so those kind of tactical moves could be done, but overall going hugely into cash is not a strategy I believe we would be doing right now, unless and until things go completely out of hand, which although we are not experts on geopolitics, but I do not think that will happen over the medium term.
Do you sense that at panic times like these and especially in cases of war and the fact that there is a war pretty much everywhere, gold and silver will continue to be large chunks of people’s portfolios and perhaps even increasing exposure may be a good strategy.
Sandip Sabharwal: All that depends on what we think is built into gold prices, what is not. So, I would think that this recent conflict to some extent was built in but also not built into the rest of the extent. But ex of that a lot of the uncertainty, positives, are already built into gold prices and now we hear that people who used to criticise investments into gold, they said gold is always a bad investment, quote Warren Buffett on gold, etc, they have become proponents of gold. So, gold is not an asset today which is an ignored asset, under owned. It is very reasonably owned and it has spiked up also substantially. So, I would not suggest anyone to reduce their gold holdings, but I would not be a proponent of increasing gold proportion in your overall holdings at these prices.

Do you think this is a meaningful move, finally trading of electricity futures?
Sandip Sabharwal: Electricity futures trading being spread out across exchanges will obviously hurt IEX, but then for the other exchanges whether it will become any significant part of revenue is unlikely. So, on the negative side it is obviously negative for IEX, but positivity for the two exchanges will be limited.