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stock market analysis: ETMarkets Smart Talk: Siddarth Bhamre decodes why India commands premium valuation compared to other EMs

“Our markets have been resilient and there are good reasons for this too. Valuations are not very attractive but given the circumstances, India will command a premium,” says Siddarth Bhamre, Head of Research, Broking Limited.

In an interview with ETMarkets, Bhamre said: “We are positive on auto and auto ancillary, private sector banks, cement, and consumer durables space, and have suggested clients to avoid metals space completely” Edited excerpts:

The month of September started on a volatile note. It looks like the market is moving in a range where 18000 is turning out to be a big resistance. Where are markets headed?
After 2500+ points rally in Nifty50 from mid-June, some consolidation should be considered as healthy and there are reasons as well for the market to take a breather.

Rising interests are a reality now and hence there is a wave of opinions that are calling for a slowdown, soft landing or recession.

The dollar is appreciating against major global currencies and global equities are once again witnessing some selling pressure.

However, our markets have been resilient and there are good reasons for this too.

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Firstly, unlike world markets, we are growing at a decent pace. If the world is dealing with issues of slowdown/ recession or geopolitical issues, our problem is whether we will grow at 7.2% or 6.9%. It’s not a bad problem to have if we look around.

Indian rupee too has outperformed major currencies, which has instilled confidence among FPIs to restart deploying money into our markets.

The problem in the Chinese market has given the scope for an increase in the weightage of India in the emerging market basket. All these factors suggest we should not be negative on markets and remain invested for now.

Yes, valuations are not very attractive but given the circumstances, India will command a premium.

We have more than 11 crore retail investors registered on the BSE website. And, the good part is that most Tier II and Tier III cities are seeing strong growth on a YoY basis when compared to metros. What does your channel check suggest?
Covid-related lockdowns and good performance by equity markets attracted millions of new investors. With the economy now back on track, it will be only normal if the pace of new account opening reduces.

As far as the composition of participants is concerned, again penetration of equity culture in metros was anyway quite deep hence the new addition had to be from Tier II and Tier III cities.

Though there is still a long way to go for equity culture to spread in our country, expecting the same growth rate of the last two years will be very ambitious.

What is powering capital goods sector which was on buyers’ radar in the last month?
Let’s accept the fact the economy was slowing down in 2019. Pre-pandemic industries were not functioning at optimal capacities for many quarters and before markets corrected, capital goods space was already under pressure. The story has changed now.

Most industries are optimally utilizing their capacities. RBI in its recent policy stated that capacity utilization is already around 75%. This has forced the market to believe the private CAPEX has already begun which is fueling demand for capital goods stocks.

IT stocks continue to suffer. What is pushing tech stocks lower and are they now available at attractive valuations after the recent fall? Any stocks which investors can look at for the long term?
Post 2020 correction IT stocks have outperformed significantly. From the lows of March 2020, Nifty IT index gave 2.5 times returns against Nifty’s 1.5 times. With digitalization in full swing, the IT sector was a big beneficiary, and post-pandemic equity portfolio restructuring ensured IT got lion’s share.

This growth plus asset allocation on the equity side led to a huge surge in stock prices taking them much above the valuation comfort. Now, we all know that growth in the IT space came at the cost of margins as employee costs skyrocketed in this space.

With the US economy heading towards a soft landing and IT companies under margin pressure due to high wages, stocks are taking the beating. They are still not inside the attractive valuation zone. However, 5-10% more correction and they will again start attracting investors’ interest.

Small & midcaps outperformed by a wide margin the last month – how should investors play this theme in the coming months?
There has been an outperformance of 2.68% and 1.24% by small and midcap indices against Nifty in August. But even BankNifty outperformed Nifty by 2.18%.

It is mainly because the Nifty IT has underperformed. In this month we are witnessing overall consolidation in major indices and in this consolidation, we may see mid and small caps outperforming as many participants who missed out on the rally since mid of June 2022, may flock towards this segment.

However, it may not be broad-based and may see a rotational rally with different stocks performing periodically.

Please share a little about yourself.
Being a stock market professional and in the business of advising other people on where to invest their money, I have refrained from taking direct exposure to equity markets so as to provide an unbiased view.

My introduction to the capital market started when after my graduation I was working in the redemption process of IDBI’s callable deep discount bonds. Management studies and financial curriculum made me fall in love with equities.

The stock market itself is such a great inspiration to be in. For me, different investors have been inspirations at different points in time and all of them still inspire but I follow the principles of Peter Lynch more than that of others.

I do not carry my work at home. I don’t try to find investment ideas when I am traveling or out for leisure. Thinking about opportunities 24*7 can exhaust your mind.

Many of my weekends are filled with sports activities like running and cycling which keep me both mentally and physically fit.

Any changes you have made to your portfolio. If yes, what are the changes and why?
Personally, as I stated I have refrained from taking direct exposure in equities, I am invested heavily in real estate.

Professionally we have suggested our clients to increase exposure in auto and auto ancillary, private sector banks, cement and consumer durables space. We have suggested avoiding metals space completely.

What is the trend you are seeing in retail investors’ trading? Does the trend favour long-term investment, F&O, intraday trading or commodity trading? What is the pecking order? What could be possible reasons for the trend?
If you look at segment-wise volumes of the market you will know that retail investors have been totally sucked into index options trading.

I am a strong believer that futures and options are a very useful tools to generate higher returns and reduce portfolio risk. However, excessive exposure to anything is detrimental.

These days most of the retail community is busy in intraday index options trading.

My suggestion would be to segregate capital into two buckets of investment and trading. Within trading there should be further segregation depending upon risk profile.

There are several reasons for a significant rise in index options volume but according to me, the primary one is a slow and steady change in the margin framework of our markets which has pushed retail investors from delivery-based trading to index options trading in search of higher exposure on lower capital.

The trend is not healthy for participants though, intermediaries and exchanges have been beneficial of this trend.

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

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