markets: ETMarkets Smart Talk: Stock Picker’s Paradise! Rajesh Bhatia on identifying opportunities in record-high markets

In an interview with ETMarkets, Bhatia who has 30+ years of investment experience in Indian equities said: “Further, we believe the valuation of large caps are not expensive, given that the nifty trades at 20x FY26 earnings as against a 10-year average of 17-18x” Edited excerpts:

After 3 consecutive months of positive returns, Nifty started September on a muted note. What is weighing on D-Street?
September 2024 has already seen Nifty falling by 1.19% (till 9th Sep’24) tracking weak macro data from the US, deepening China-U.S. trade disputes, unpredictability surrounding the U.S. presidential election, and a dearth of stimulus policies from China to spur economic expansion.

This along with the heightened geopolitical tensions around the globe, has resulted in the overall sentiments around Indian equities to move in the bearish territory.

We remain watchful for any major risks that could significantly affect the market, though at this point, they seem to be elusive.

The chatter of a slowdown has picked up, especially in the US, which could also extend to other developed economies. What are your views on how it will impact India?
Weak macro data coming from the US gives a sense of a slowdown in US. A phase of volatility in Indian equities in the near future cannot be ruled out, given the initial signs of weakness in global equities.

That being said, the Indian economy will be in a better space than its peers due to strong domestic macro and micro tailwinds.

An expected GDP growth rate of ~7%, moderating retail inflation, range-bound crude prices, easing 10-year G-sec yields, stable currency, and resilient corporate earnings puts India at a bright spot.

With corporate earnings reported in line with expectations and policy initiatives like PLI, etc., augur well for Indian equities.

Hence, we remain positive on the medium-to-long-term outlook on Indian equity markets supported by healthy macros and retail participation.

Markets record highs – does it make you cautious or more bullish at current levels?
Even with Indian markets reaching record highs, certain bouts of investment opportunities do exist.

India is a growing economy and hence valuations are bound to be high, however, we try to focus on understanding the real reasons driving India’s fundamental growth (primarily capital expenditure, infrastructure development, and policy reforms) and focusing on companies that can be a value buy across sectors. Overall, however, the market continues to remain strong.

What is your call on the small & midcap space?
The earnings trajectory in mid and small-caps is much faster, which explains why they are performing so well despite current valuations being stretched.

Certain sectors like chemicals and materials have companies in the mid and small space only. Many businesses in sectors like defence, capital goods, engineering, and electronic manufacturing are representative of significant growth opportunities in the mid and small-cap space.

We feel that stock picking in the mid and small cap space is the key to generate potential returns.

Which sectors are you currently overweight and underweight on?
With the macro situation being very dynamic and volatility increasing across asset classes, we continue with our strategy of running well-diversified portfolios.

We are more focused on the stock selection process within the sector rather than trying to take large overweight / underweight position among sectors. Certain themes that we are currently bullish on are:

• Information Technology
• Chemicals
• Infrastructure
• Indigenisation
• Formalisation
• Manufacturing
• Premiumisation
• Auto & Auto Ancillaries

Disclaimer – The views expressed are purely personal in nature. The statements herein may include future expectations and other forward-looking statements that are based on our current views and scenarios. The information herein alone is not sufficient and shouldn’t be used for development of an investment strategy or construed as investment advice. Please consult your financial advisor before investing. The Stocks/ sector(s)mentioned above do not constitute any recommendation and ITI Mutual Fund may or may not have any future position in this sector(s).

You have seen many market cycles in the past and many investors usually get stuck here – either to hold money or deploy fresh money at current levels. What should investors do if they plan to deploy fresh capital?
It is futile to time the market. Investors should focus on the bigger picture and the opportunity offered by Indian equities. Markets may likely continue to remain robust over the long run. However, looking at the current market conditions, investing in lumpsum would require a high conviction.

During such phases of heightened volatility, a phased deployment can prove to be a prudent technique. Understanding the client’s risk tolerance and investment comfort level is also essential.

Some clients may prefer to invest gradually to avoid the stress of potential market swings, while others may be comfortable with a lump sum investment if they have a long-term perspective.

An investor can use the Systematic Investment Plan and Systematic Transfer Plan options to get the best out of this volatility as it would give an advantage of rupee cost averaging and help them to maximize their returns from the markets.

Which sectors are looking undervalued, or contra buys at current levels?
This has been a bull market with an extraordinary breadth of sectors participating. On a sector basis, there is still valuation comfort in private banks, telecom, and life insurance companies.

Further, we believe the valuation of large caps is not expensive, given that the nifty trades at 20x FY26 earnings as against a 10-year average of 17-18x.

The mid-caps and small-cap valuations do appear stretched, although we also strongly believe that the India growth opportunity is best being captured by the mid-cap and small-cap sectors.

How should one pick stocks, especially at a time when the market is trading near record highs?
We believe that the investment environment right now is a ‘stock picker’s paradise’. Despite markets trading at record highs, we still see pockets of opportunities across the market capitalization.

With the outlook bullish across sectors, we look at each company individually and identify opportunities by looking at fundamentals and balance sheets to identify potential opportunities by bottom-up stock picking.

Disclaimer: All figures and data given in the document are dated unless stated otherwise. In the preparation of the material contained in this document, the ITI Asset Management Limited (“AMC”) has used information that is publicly available. However, the AMC does not warrant the accuracy, reasonableness and/ or completeness of any information. The information provided is not intended to be used by investors as the sole basis for investment decisions, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific investor. Investors are advised to consult their own legal tax and financial advisors to determine possible tax, legal and other financial implication or consequence before making any investment decisions. The information contained herein should not be construed as a forecast or promise nor should it be considered as an investment advice. The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The statements made herein may include statements of future expectations and other forward-looking statements that are based on our current views and scenarios and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this information.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)