Selectivity is key as markets enter narrow, range-bound phase: Dipan Mehta

“All the expectation of this particular major event because once this uncertainty is over and done with, only then the real trend will play through because if there are going to be heightened tariffs, then you can expect all equity markets including ours to drift lower, maybe even crack further from these levels,” says Dipan Mehta, Director, Elixir Equities.

Firstly, help us with your take on the markets because post the policy the markets did see a great run up but seem to be consolidating. How do you see this consolidation and which other sectors do you believe can participate in the next rally?
Dipan Mehta: So, the kind of googly which was bowled by the RBI was very well received by the market and what is supposed to happen three or four months down the line actually has happened last week itself and that has been something which is very positive and we have seen the current coming through in lot of the lenders because of that and eventually, it will percolate down to all the other industries which are dependent on lending to grow their business, like say, real estate or automobiles or capital goods for that matter.

So, I think that what was a much needed boost because earnings were flagging and now with this particular step taken by the RBI, we should definitely see improvement in corporate earnings which will also be, I would say, benefited by lower tax rates as the tax cuts will also have already kicked in and maybe a better monsoon as well, because at these levels the markets are, I would say, pretty much in fair price to slightly on the expensive zone and for the stock market prices to move up from these levels we need a lot of support coming through from corporate earnings and all the various aspects and the variables are in place to lift corporate earnings but till that does not happen I would not bet on the market crossing the previous highs, till then you may expect sideways movement, but at the same time looking at the corporate earnings, I would say, a lot of selectivity has to now come into stock selection and portfolio management and last but not the least we have this 9th July deadline of the 90-day pause getting over for Trump tariffs, how that will play out also will have a major bearing on the price movements over the next few months or quarters.But as an India strategist, I mean, what should your strategy be because the big overhang continues to be what is going to happen on tariffs. Yes, there is some headway now between US and China, but it is still not a done deal. You do not know which party is going to slap how much tariff on what product.
Dipan Mehta: That is right. I think for the time being that is the reason why the markets also are pinned down and are moving in a very narrow range. So, all the expectation of this particular major event because once this uncertainty is over and done with, only then the real trend will play through because if there are going to be heightened tariffs, then you can expect all equity markets including ours to drift lower, maybe even crack further from these levels.

But if the tariffs are reasonable and kind of business as usual and if we have the support of corporate earnings, then global markets including ours will start to move up. So, it is like inflection point for the entire global equity markets, which way it will tip we cannot say because President Trump is very unpredictable and how it will play out is anybody’s guess. All we can hope for is a positive outcome. But one thing I can tell you and stress in a very important way is that whatever the outcome of 9th July is or whatever the way the market is going to move forward, it is going to get far more narrow and selective. Right from 2020 to September 24, it was like all round bull run, everything did well, all portfolios did well. I think that there is going to be a change over there from September 24 onwards and then in this financial year and calendar year as well stocks will get very selective, sectors will get selective and within sectors also stocks will be moving on in a selective way. So, it is going to really test our stock picking skills in the next few months and quarters.