In an interview with ETMarkets, Bhootra said, “The recent drop seen in mid and small caps has removed much of the excess valuation and many good growth companies have become attractive in terms of valuation.” Edited excerpts:
What a week for Indian markets. Benchmark indices are up more than 2% and more than 8% for the month of July. What led to the price action?
A couple of major factors have led to the type of rally seen this week. First, markets were already oversold and pockets of value were emerging as investors waited for some relief from global macroeconomic pressures that came as global commodity and oil prices drove inflation down to the bottom. coming.
Second, Fed policy comments in the U.S. were viewed as dovish by markets, and the Fed’s focus on further data-driven hikes helped improve sentiment as markets look ahead. lower inflation in the second half of this year.
Now, with the recent stance, markets are now expecting the Fed Funds terminal rate to come sooner than expected, which has led to a strong rally.
Third, foreign funds have also started to turn positive in India, as seen in recent days, which also adds to sentiment.
“ Back to recommendation stories
In terms of sectors, the BSE Metal index rebounded more than 7% in July. Do you see a similar performance in August? Will the rally continue and the best sector bets?
The metals sector has been the worst performing sector in recent months due to macro headwinds and government-imposed export regulations to control rising prices. The sector could continue to remain under pressure barring a recovery of relief until the macro headwinds remain.
Sectors that should perform better are financials, manufacturing and capital goods, specialty chemicals and information technology, which are also attractive at current valuations.
Which sectors will participate in the next leg of the rally as we chart our course above 17,000 on the Nifty?
I think financials, because credit growth is good and the upcoming holiday season bodes well, while IT, which now trades at attractive valuations and both make up nearly 50% of weights, should participate if the Nifty rally continues, some support could also come from manufacturing and industrials.
Small and mid caps slightly outperformed. What led to the price action and should we now consider overweighting broader market stocks as most of the negatives are priced in?
The recent drop has been seen in mid and small caps, which has eliminated much of the excess valuation and many good growth companies have become attractive in terms of valuation.
The improvement in macroeconomic factors and recent results in relatively good terms have reaffirmed the underlying solidity of these companies and attracted inflows of investors.
I think the worst is behind us and it is now up to companies’ results to decide what to do with the markets. Investors might start to consider adding positions in companies with better results.
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