ETMarkets Smart Talk: Market may be near record high but risk-reward not very high: Siddarth Bhamre

“At the current juncture, our comfort on market from a risk-reward perspective is not very high and we are not very optimistic. We would suggest not being aggressive and accumulate stocks only on dips,” says Siddarth Bhamre, Head of Research, Religare Broking Ltd.

In an interview with ETMarkets, Bhamre, said: “If one is actively managing their portfolios, then increasing cash percentage is advisable only to deploy it back at more comfortable valuation levels” Edited excerpts:

We are few % away from hitting record highs. What is your view on markets?
Since July we have been optimistic about markets with a firm belief that India is in a sweet spot though globally most of the economies are facing different challenges.

This understanding has paid off us quite well as our markets have outperformed significantly. Since then, we have seen a sharp rise in interest rates across the globe.

At the current juncture, our comfort on market from a risk-reward perspective is not very high and we are not very optimistic. We would suggest not being aggressive and accumulate stocks only on dips.

Q) The recent rally seen in the Indian market stands out when we compare it to EMs. The rally also makes Indian markets slightly expensive compared to global peers. Will India be able to hold on to the outperformance?

Macros of our markets are now extensively discussed and most of us are sold the idea that the Indian economy will do better than other major economies.
However, we believe that the job market in the US may not throw encouraging data points in the coming months which would limit the upside in global equities including ours.

Also, the correction in crude oil prices is signaling a higher probability of things slowing down. In this period, Indian markets may continue to outperform but absolute returns may not be easy to come by.

As Indian markets on the verge of creating history where do you see the next set of leaders emerging from?
In the recent past, we have seen that despite markets about to scale new highs, it has been more of a stock-specific market and within sector, there has been rotation in stocks that are contributing to the rally.

We don’t see a major change in the scenario. Also, during consolidation or slight correction periods, large-cap defensive space is a better strategy to adopt.

FMCG, selected IT and some of the banking names may provide stability to markets if volatility sets in.

Recently, PSU as well as Rail stocks have picked up momentum. What is driving rally in these 2 sectors?
We do not track rail stocks, however, in PSU names it’s mainly banking which has done very well. The story was known much earlier that their balance sheet is clean and with credit offtake increasing they are in a better position to create a healthy lending book at least to start with and hence we are seeing traction in them.

But it’s needless to say that in this basket exposure beyond the top 2 names is not going to create any wealth from a long-term perspective till the time there is no structural reform in this space.

Other segment of the PSU basket has not done well with OMCs underperforming and selective names in metals and power performing.

Any sector(s) which you think investors can pare their holding as well move towards record highs because it might have already run up?
Here too we believe the stock specific approach will be the prudent way though we believe that metal and hospitality are two spaces where some trimming of exposure can be thought of. Metals, because of global slowdown and hospitality space, due to expensive valuation.

Should one consider rejig their portfolio as markets create history?
Portfolio churning is dependent on the time horizon of investors and the kind of portfolio one has designed.

If one is actively managing their portfolios, then increasing cash percentage is advisable only to deploy it back at more comfortable valuation levels.

Exposure to defensives and auto space is recommended along with selective banking names.

Now that bulls have again taken control of D-St do you see more IPOs making their comeback to D-St? We have already seen a few in Oct-Nov. Any particular IPO(s) which you are looking forward to?
We all know that number of IPOs in a bull market is much higher as sentiments camouflage a lot of aspects of pricing in a consolidating or falling market are exposed.

We strongly advocate investing in existing stocks or IPOs based on companies’ fundamentals. Most of the IPOs which have recently hit the markets have not kept much on the table for investors to make them as attractive investments.

How do you see export-linked sectors faring in the near future?
We are fairly optimistic about the IT space. Recently the management of a mid-size IT firm commented that demand a year back was from revenue expansion and digital transformation while demand now is from a cost optimization perspective.

In either case demand for IT is there. The recent correction has given valuation comfort too. So this is one export-linked sector which we are optimistic about.

Your biggest upgrades or downgrades post Q2 results?
We have a number of upgrades in the FMCG space with Britannia leading from the front followed by ITC.

Among auto names, we have upgraded Maruti and it’s one of the top picks as we are anticipating a gain in market share as the company has launched CNG variants of its successful products and with other new launches in the pipeline which have been missing since quite some time.

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