Indian stock market sentiment upbeat but investors need to be cautious, says Divam Sharma of Green Portfolio, PMS

What is your assessment of the current market situation? What should be the strategy of investors for the next six months?

⁠Markets have done great over the last year. We have been seeing new allocation value opportunities coming at the listed pace. 

Investor confidence is very high, we are seeing so many IPOs and new-age companies coming up. 

Some new papers and preferential allotment opportunities are attracting capital. 

With elections coming up, investor enthusiasm is very high. In overall markets, a lot of things are currently quite expensive with issues. 

There’s a lot of investor appetite, yet there needs to be caution while investing particularly since markets are very volatile right now.

Also Read: Morgan Stanley sees significant opportunity for bottom-up stock picking in India; lists its preferred sectors

Why is there a tug-of-war between FIIs and DIIs?

FPIs continued their selling streak this year with US bond yields witnessing a spike, triggering them to increase their position in the debt markets. 

The US also reported higher-than-expected inflation of 3.1 per cent which is above the Fed’s annual target of 2 per cent. 

The Fed has maintained its hawkish stance, asking investors to maintain patience before expecting any rate cuts. 

But there’s a silver lining to it as ahead of India’s inclusion in global bond indices from June 2024, FPIs have been buying sovereign debt since October last year. 

As far as equity markets are concerned, DII’s neutralized the FII selling to some extent.

Also Read: Why Chris Wood sees 7% real GDP growth and 12-15% earnings growth going forward; lists 3 achievements of PM Modi

We are approaching General Elections. How can it impact our market?

There is a general perception of continuity of governance for existing parties which can trigger election euphoria. 

Any negative surprise or buying the rumour and selling the news can be a trigger for the markets. In the last 10 years, India has done well with infrastructure creation, geopolitical relations, and building momentum. 

We have seen the policy stance continuing in the recent interim budget. A very strong mandate will be cheered by the markets.

What do you think about the US economy? How can a slowdown in the US economy impact us?

We are seeing a slowdown in many advanced economies like the UK and Japan, and a slowdown in the US is also a possibility. 

However, our economy is mostly doing well from the contribution of a concentrated segment of society, while the broader population and rural economy are yet to perform that well. 

A slowdown in the US markets can affect Indian markets negatively particularly sectors like IT but overall markets should show resilience.

The talks of rate cuts have been weakening. There are expectations that the Fed may start reducing rates only after June. Can a delayed rate cut sour the mood of the market?

Delayed rate cuts can negatively impact the markets. The US recently reported January Inflation numbers and they are well above the Fed’s annual target of 2 per cent. 

The Fed even asked stakeholders to maintain patience before they can see a rate cut. 

This escalated bond yields, making debt an attractive investment, yet again. 

FPI money can stay out of action from emerging markets for longer as the valuation gap also has widened with China.

Do you expect a substantial rate cut or a shallow rate cut from the Fed?

The Fed is not expected to cut interest rates for another couple of quarters and even when the rates are cut, we will see it happening in tranches as multiple shallow rate cut cycles. 

Inflation data that was currently released by the Fed now indicate a very promising picture of rate cuts in the near future.

What are the themes and sectors that you are betting on? Is there more steam left in the PSU space?

We as a fundhouse do not invest in PSUs. Considering the rally that PSUs have witnessed, valuations have gone up and now it’s time for growth to show up in numbers.

Also Read: Stay light ahead of the elections; defence, engineering, railways, infra look overvalued, says Jimeet Modi of SAMCO

What might constitute an optimal portfolio strategy for the upcoming decade, considering factors such as equity distribution and allocation across large-cap, mid-cap, and small-cap segments?

We would suggest a 50/30/20 rule for small/mid/large cap space. 

We are going to see hyper-growth in the economy over the coming decade as India is poised for massive growth. 

Niche companies with a low base – mostly small and midcaps will see significant growth. 

We have sectors like defence and telecom that are already growing at a very fast pace. 

Expect a lot of new-age companies like in VFX, deep tech, and more to come too.

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Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 25 Feb 2024, 07:15 AM IST