The long-term prospects for the market are still bullish and we should use every dip as a buying opportunity
With several discount brokerages gaining currency over the past few years, SATISH MENON, Executive Director at Geojit Financial Services, tells Nikita Vashisht in an interview that there is enough scope for both types of intermediaries in this market – the discount model as well as full-service model. The impact on margins, he says, would be primarily on the day trading as well as Future & Options (F&O) business. Edited excerpts:
What should investors’ trading strategy be at the moment, given markets are at an all-time high?
The long-term prospects for the market are still bullish and we should use every dip as a buying opportunity. It is incorrect to compare the stocks’ valuations due to the low earning base. That said, there are certain stocks from some sectors like information technology (IT), pharma, and metals, where the valuations today are looking a little expensive; hence, it is advisable to book partial gains in such expensive stocks.
Your view on the broader market?
The economy is yet to benefit from unlocking and I expect the trend to continue in the short to medium-term. Hopefully, the impact of the third wave could significantly reduce, given the progressive vaccination drive. This should improve the overall performance numbers in the quarters ahead. Investors will benefit from this along with increased liquidity, which would still positively impact small caps.
Which sectors still look attractive from a valuation view point?
Buying in value stocks & sectors will be back soon. These value stocks would outperform the market and also add stability to the portfolio. Some sectors where the value buying can happen at this point are Finance, PSU, Media, FMCG and Auto.
Equity mutual funds (MFs) have seen net inflows for three months in a row. Do you think MF, as an investment route, is regaining investors’ trust?
A major part of 2020 saw net equity outflow for the MF industry. The trend has now changed. This shows confidence in the Indian economy. They feel that returns in Equity MF – in the long run – would be able to comfortably beat the inflation. Also, many people who were sitting on side-lines waiting for the market to correct last year have come back. With an increase in disposable income and other investment instruments not being so attractive, this trend would continue for many more months.
The broking industry has done well over the past year with a lot of business coming from the Tier I & II cities. Do you see similar growth in FY22?
Yes, in terms of new accounts, Tier I and II cities are trying to catch up with metros. The market volumes have shown considerable improvements over the last year. These cities would continue to grow faster due to the penetration of the internet / intermediaries as well as the spread of knowledge of equities as an investment class. Traditionally, we have been strong in Tier I and II cities and would continue to grow our base in such areas.
Do you think discount brokerages’ model is the way forward?
There is enough scope for both types of intermediaries in this market – the discount model as well as full service model. The impact on margins would be primarily on the day trading as well as Future & Options (F&O) business.
RBI has acknowledged inflationary pressure as a ‘supply’ side issue. Does this mean the low-interest rate regime is here to stay? Your advice to bond market participants?
Like most central banks, the RBI has also maintained that the rise in headline inflation print is ‘not persistent’ and is a function of supply shocks emanating from localized lockdowns. However, I do subscribe to this view. The RBI Governor has clarified that the rate hike will not be there on the central bank’s table until growth takes roots. I don’t see RBI thinking otherwise in the near-term. With inflation within RBI’s comfort zone and steps to tame the yield at both ends of the curve starting to show results, bonds may be a good bet for fixed income investors with a usual disclaimer in place.
First published in Business Standard.