Global policy uncertainty may lead to further market volatility: Pankaj Pandey

“Historically, since 2006, we have seen that the average correction in midcap and Nifty has been about 27% lasting for a period of about seven odd months,” says Pankaj Pandey, Head Research, ICICIdirect.com.

What are you telling your clients to do? Should they use the strength to their advantage to clean up stocks?
Pankaj Pandey: Yes, our sense is that some amount of cash is not a bad idea at current levels because see what we are still not factoring is the global policy paralysis as uncertainty regarding global growth and inflation remains because top two economies are engaged in a tariff war.And our sense is that, for example, in our case itself, it is very difficult for us to take a call on safeguard duty for a sector. Since we do not know the impact it will have on the overall Chinese production. And also we are not even clear in terms of tariff on EU and other countries. While domestically things have been good, our sense is that next two years, you will see 14% kind of CAGR growth in earnings, there is a good potential that we will have a relative advantage in terms of tariff.

Crude is already down. So, domestic macros are definitely supporting, but global uncertainty still persists and which is why it is possible that the markets can correct further.

Historically, since 2006, we have seen that the average correction in midcap and Nifty has been about 27% lasting for a period of about seven odd months. So, some bit of volatility I will not rule out and which is why a bit of cash at current levels is not a bad idea.
Where do you think there is opportunity still after this two-three day run up? I mean, the near term, where do you think there are some bargains there?
Pankaj Pandey: So, banking is clearly one sector where things have been relatively quite better. The RBI has been on a positive surprise, especially with regards to the liquidity side. So, banking is one sector which looks attractive to us and valuation-wise also we do not see much of a challenge, so that is one space which we are liking. We are liking both Axis Bank, Kotak, and HDFC Bank and even some of the NBFCs like Bajaj Finance and Shriram Finance. It is still a sort of a question mark at this point so structurally, we are positive on it. The other thing is that capital goods have corrected significantly. So, we have started to like a company like, say, for example, ABB. It is trading at about 46 times on a forward basis.

Even when we did not have the capex cycle, say, between 2010 to 2020, these stocks used to trade at about 40 times forward. So, from that perspective, even the capital goods stock post corrections are looking attractive.

If the liquidity increases, who would be the biggest disproportionate beneficiary? Go down the line, I mean, like Kunal said, and you have discussed MFI dominated banks or retail dominated banks?
Pankaj Pandey: MFI picture is still not very clear. It is possible that we could see a quarter or probably two quarters of pain ahead. So, from that perspective, unsecured lenders like, say, Bajaj Finance or Shriram Finance are relatively attractive to us. We would still not go down to tier II NBFCs at this point in time.