Vaibhav Sanghavi on why he is avoiding midcaps now
- Liquidity environment which is favourable for risk assets.
- Shorter-term events can keep the market volatile.
- Expect earnings recovery in second half of FY20 and FY21.
- Consumption and investment boost to lead to economic growth: Keki Mistry, HDFC
- More than tax cuts and rate cuts, there is a need to solve the credit freeze: Vikas Khemani
- Be realistic, sit on cash and accumulate good quality stocks: Deven Choksey
- Park money in IT and corporate banks now as you wait for opportunities: Abhimanyu Sofat, IIFL
There is a bit of jitteriness in the global markets ahead of the G-20 summit slated for this weekend. It could be because of the geopolitical tensions -- be it US-China or US-Iran conflict. How do you think this entire scenario will pan out?
Market has been consolidating into a pretty tight band of late. What has happened is that last month, India in the basket of emerging markets, marginally underperformed and it is to give away the fantastic outperformance which we had in the previous two to three months.
Having said that, what is happening on the global scene is on fundamental basis, everywhere the interest rates have pretty much topped out and we would be seeing softer interest rates from now onwards at least for the foreseeable future. At the same time, we are seeing negative bond yields in many countries as well. What is also evident is that the liquidity tightening programme which was earlier started by the US is now ending in September and we are seeing incremental easing in Europe as well.
All in all, on a global perspective, we are seeing softer rates and liquidity environment which is favourable for risk assets. There will be skirmishes like the US-China faceoff which may be a little temporary, but on a fundamental basis you are positive on the risk assets.
In India as well, you are seeing softer rates and liquidity getting back pretty much in place post election as well. We think that markets should be looking favourably in the medium term perspective. But again, shorter-term events can keep the market volatile, but we are very constructive on the market.
There is a lot of traction now in safe haven assets. We have seen up move in gold prices, given the uncertainties. Markets are not just volatile but there are days even when it is completely lacklustre. Is that a trend you see picking up? Perhaps investors could flee from equity markets or from riskier assets to more safer ones?
Yes of course when you are allocating money on top-down perspective, the obvious choice would be to enter the largecaps, which are the relatively safer bets. Everybody keeps on talking about whether it is right time to get into midcaps or not. But till we see a broader economic growth happening on a consistent basis, we would refrain from going into that segment. We will stick to the larger and relatively safer havens as the valuations remain elevated in the medium-term perspective.
Amid all the noise, amid all the geopolitical tension, marcos, elections, then now there is the budget, what about earnings growth? What kind of recovery are you expecting in Q1 and Q2?
Q1 is likely to be pretty weak from consumption standpoint. But post the elections and now post Q1, towards the end of the Q2 we will be starting to look towards the festival season wherein we do expect consumption to revive. For the first part of FY20 you might see some amount of subdued numbers but the second part of the FY20 is when recovery should catch up.
Having said that FY20 and FY21 are the years where we expect sizable recovery in earnings. While the Street may talk about 23-24% earnings growth, we would prefer to be conservative and expect 15% to 17% earnings growth. If that happens, it would be a fantastic number.
What is your view not just on banks but also on NBFCs, HFCs and insurance?
Banking and financials continue to be a fantastic opportunity for India as a market. At this juncture, we are seeing some kind of stress in some pockets primarily in NBFCs which are weak in liability franchise. Over the next two to three years, banking led by corporate banks is something we are bullish on. At the same time we would be bullish on very select NBFCs which are much stronger on the balance sheet and have a great technological advantage. All in all, we are bullish on banking and finance space for next two to three years but led by corporate banks.