Start nibbling when Nifty is near 15,000 level; here’s what to buy: Sandip Sabharwal

“Avoid commodities and go for select financials, especially the larger banks, as also autos and capital goods,” says Sandip Sabharwal of asksandipsabharwal.com

On the meltdown in the stock market & cryptos
I think the bigger concern is about what is happening to all other asset classes because people have allocated so much money, especially into crypto currencies, where a lot of hedge fund collapses are possible. Liquidity dry up could have an impact on all other global markets also. Indian inflation data is also expected today and that will be keenly watched domestically.

The US Fed policy this week obviously becomes much more important in the context of the persistently high inflationary pressures and what they do in reaction to that because the interest rate hike of 25 bps higher or lower does not matter so much. It is the liquidity which needs to be withdrawn faster. I will be keenly watching whether they increase the pace of balance sheet reduction because that is majorly contributing to all inflationary impulses. Once markets become more confident about the fact that central banks are now on track to get inflation under control, that is the time markets will settle down and that could take a few weeks.

When would you believe that the market may be nearing a bottom? Should one try and at least nibble into the stocks that one has been marking out for the market lows or would you stay away let the poison get out of the system?
For a few days at least, people should just leave it because you do not have to buy everyday. Since 15800-15900 markets have gone and bounced back continuously, there is a lot of confidence among investors to buy at those levels. But when we correlate the Indian markets to what is happening globally, how we have fallen and have a valuation premium, we need to be circumspect in the short-term and we should let the market find its level,

Maybe the market will fall another 4-5%. If it falls then we could start nibbling because we do not know where the exact bottom will be, what we need to start buying when we think the downside potential is lesser than the upside potential. That could come closer to the 15,000 level of the Nifty.

What is on your shopping list?
The sectors to avoid will be commodities because that is where the hit will come as the inflationary fear gets ebbed and people believe that central bank action is having an impact. The users of commodities are sectors which get sold out because of high inflation fear. That is where we have to buy. Select financials, especially the larger banks, is where we have to buy as also autos, capital goods.

These will be the sectors to buy at that time. Right now, as the markets correct, we will see sectors like pharma and possibly FMCG outperform because they tend to outperform in the downturn. But my guess is that this phase of fall could be rapid and create opportunities faster. Overall we should just keep the cash instead of buying defensives and try to buy more of domestic economy linked cyclical as the correction plays out.

Do you think the change of guard at RBL would make much of a material difference market wise?
It raises more concern because a PSU banker who has been an administrator in DHFL and appointed as CEO for RBL Bank. Putting someone like that in control raises red flags on the balance sheet of RBL, disclosures etc. So I would not like to comment fundamentally because the stock has fallen so much right now, but for investors who just see prices and think that it might be an attractive buy, it should not be an attractive buy. People should just wait out and see what comes out over the next two quarters in terms of the balance sheet disclosures. If they remain stable, then it might give an opportunity.

You talked about autos and capital goods. What are the plays that you are looking to buy when the market dips further?
On one side, we have highly valued MNC capital goods companies which are showing good traction in terms of order books and execution but their valuations are high but hopefully in the market correction, there will be opportunity to get into stocks like ABB, Siemens etc. On the other hand, domestic companies which are doing very well due to various initiatives – be it capital expenditure steel, cement, or just a pickup in capital expenditure – like Thermax and several smaller companies, all of them should be in the lookout for investors unless and until the interest rates move up too much too fast to hit economic growth prospect very significantly. The capex cycle this time seems to be pretty strong for the next few years.

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