India best-performing EM; FMCG, consumption themes look good – Vinod Nair

0
83

India has been the best performing emerging market in the long-term as the fastest growing economy and will continue to do so as we overwhelm this short period of anxiety, said Vinod Nair, Head of Research at Geojit Financial Services. In an interview with MintGenie, Nair pointed out that on a yearly basis, MSCI-India is outperforming with a return of 2% compared to MSCI-China at -32% and MSCI-EM at -28%.

Edited excerpts:

The hottest topic now is the impending recession in the US which could spill into other economies. How worried are you regarding the prospects of a recession? Do you think India will underperform or outperform?

We are not much concerned, but cautiously optimistic, because a large part of the economic disorder has been factored into the market and there is a possibility for a soft landing, limiting further clampdown. 

Currently, the global market is experiencing a phase of consolidation, which we believe is in the final stage of adjustments, as the biggest culprit of commodity prices (inflation) has started to cool rapidly. 

Recently, India has been underperforming due to intensified selling by FIIs, moderation in domestic inflows, high valuation compared to others and global economic disruptions. 

However, India has been the best performing emerging market in the long-term as the fastest growing economy and will continue to do so as we overwhelm this short period of anxiety. On a yearly basis, MSCI-India is outperforming with a return of 2% compared to MSCI-China at -32% and MSCI-EM at -28%.

The outflow of foreign funds from the Indian market remains unabated while the DIIs continue buying. What is the reason behind this contrasting trend? What can bring FPIs back to the buying mode?

The contrasting trend is not unique but historical, and the correlation gets stronger when the correction of the domestic market deepens. 

Today, FIIs are selling due to the world economic slowdown, high inflation, aggressive monetary policy impacting outlook, high yields, and a strong dollar. DIIs are prolonged investors of domestic equities and heavy buyers when the market becomes attractive. 

Today’s inflow is also exhibited by the high investment from retail investors. FIIs will revert positively when the world economic environment improves, inflation forecasts substantially drop, the war ends, and after the enhancement in monetary policy. 

Well, future inflation projections have started to show peak out as commodity prices are sharply softening. It opens the possibility for monetary policy to change from hawkish to neutral, bringing about a change in strategy from risk-off to risk-on, in the future. 

As an indication, the FIIs selling in India reduced this month as crude prices started to soften.

If I have to realign my portfolio, what would you suggest to me? What should an ideal portfolio look like in the current market condition?

We have been suggesting a balanced portfolio during the year. We continue to maintain the view with a mix of equity, debt, gold and cash. 

After the sharp correction during April and June, we are recommending increasing the mix of equity to 60%. 

The total mix stands at 60%, 25%, 10% and 5% respectively. A risk-averse investor can have a conservative mix of 40% in equity.

How can one reduce the risk of losing money in such a volatile market? What are the factors that one must consider before picking a stock to invest in?

In equity, the safety of capital should be the core theme, with a focus on value buying. During a vigilant market, highly valued stocks and growth sectors will have the challenge to maintain the stature of the performance, due to the risk of a downgrade in earnings and valuation. 

Stocks with a stable business model, steady earnings and dividend policy will perform better. 

Also, the ones that have low elasticity to high inflation and interest rates will outperform. 

Strong alignment to domestic growth compared to the international economy is a healthy bet today.

What sectors look attractive to you? What sectors would you like to avoid? Please explain your views.

Defensives like FMCG and consumption both discretionary and non-discretionary look good. They will benefit from the drop in commodity prices enhancing future demand and earnings growth. 

Banks are healthy due to improvement in the balance sheet and enhancement in credit growth cycles with no negative effect of the long interest rate cycle. 

Pharma also looks good on a long-term basis, though volatility can prevail in the short-term being trading at a fair valuation and ongoing pricing erosion in the US. 

The theme of green energy is a long-term opportunity, while we will have to assess the case on a stock-to-stock basis based on strength of the balance sheet to handle capex requirements and profitability being trading at a high valuation. 

We are positive on capital goods and auto ancillary due to the rise in capex cycle and demand. Regarding auto OEMs, we are positive on a stock-to-stock basis with a focus on the CV segment and EV platform.

First published in Mintgenie

LEAVE A REPLY

Please enter your comment!
Please enter your name here