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In an interview with ETMarkets, Deviprasad Nair, Business Head, Helios Capital Management (India) Private Ltd, said: “We have been reducing our mid-small cap exposure gradually since last September due to frothy valuations and limiting ourselves only to select businesses where we don’t see commodity-related short term disruption.” Edited excerpts:

Sensex, Nifty50 slip below crucial support levels – top 5 factors which are weighing on D-Street?
To my mind it all starts with the economic (and market) environment of the holders of the world’s reserve currency which is ‘US’.

In the US, they are facing 40-year high inflation, and with the mandate of managing 2 per cent inflation with optimal job creation — it’s a tough task for the Fed to deal with the current scenario.

In the US, the monetary tightening cycle has just commenced, and we are sort of in the middle of correction, so we need to see how the story unfolds there.

Other factors could be domestic inflation, how crude prices will behave in the coming weeks to months, the Russia Ukraine war, supply chain disruption as well as valuations.

Small & midcaps have already entered bear territory (down over 20% from highs). How should investors play this theme? Time to turn cautious or if someone plans to invest now what is the kind of time horizon that one should look at?
In one-line prices were way ahead of fundamentals in this segment, they were priced at a Premium to large-cap.

In today’s scenario, one should be cautious on the mid & small-cap space and wait for the right time to add these stocks back to the portfolio.

Currently, companies, in general, are facing headwinds due to rising input costs and rising interest rates.

We have been reducing our mid-small cap exposure gradually since last September due to frothy valuations and limiting ourselves only to select businesses where we don’t see commodity-related short-term disruption.

Investors need to be extremely cautious in terms of what are they buying in the small and mid-cap segment and the investment horizon in this segment now looks to be slightly prolonged.

When will the market bounce back? Some experts say that a recovery in commodity prices could help markets recover. What are your views?
I agree that commodity prices need to cool off which will end up reducing the inflationary pressure, this will help key central banks to review their monetary policy strategy and we may see a change in a stance which might be positive for markets.

Right now, the focus of central banks including ours is on controlling inflation which is not an easy job. It will be difficult to keep prices levelled with optimal job creation and stability in the financial markets.

I believe that in the latter half of 2022, if inflation comes under control with the policy measures undertaken by the central bankers and if the situation in eastern Europe doesn’t worsen anymore could support equity markets.

It will be important to keep an eye on how the consumers (countries in this case) will deal with the shortfall in agricultural products from Ukraine & Russia and what the decline in Russian fossil fuel exports to G7 countries would mean to energy supply and energy prices.

Is the market expensive at current levels? Is Nifty50 expensive at 16K or was it more expensive at 18K. PE has come down towards 20x – a level seen around March 2020.
If you were a buyer at 18K Nifty and 16K Nifty from a long-term perspective nothing much has changed except some factors contributing to short-term volatility which should settle down as we move forward in a few months.

In the long-term, you can only negate the impact of what is happening today if you are able to negotiate this well by adding to your existing investment as it is difficult to predict the bottom with precision hence averaging is the right strategy to be in the market to benefit from market in long run.

I don’t see an immediate risk to a 15% FY23 Nifty EPS growth, and on that backdrop, it doesn’t look expensive, otherwise, some pockets of the market continue to be expensive.

Any rules which one should follow when selling a stock amid a double-digit fall seen in the Nifty50?
Don’t think investors should panic and sell. In the big picture, equities have outperformed other asset classes on a medium-to-long-term ( let’s say average 5 -10 + years)basis.

On a 5-year rolling from CY 2006 till CY21, Nifty has only once delivered a negative return and twice it has been in single-digit below 10% out of 12 times.

In this study 9 times, it has delivered returns above 13.5% which is 75% times on a 5-year rolling basis market has beaten other asset classes broadly then the only thing required today is to stay cautious and invest wisely.

What is your call on the rupee? Will the currency continue its down move against the USD? Is FII selling related to currency depreciation?
Being a net importer of oil with rising crude we will naturally see pressure building up on the rupee.

We have anyways dipped into our forex reserves massively in the last 3-4 months to stabilise the currency and bought it down below $600bn, while it’s difficult to predict where it will settle with the latest inflation number printing could be higher than expected.

I believe the rupee will continue to be under pressure but thankfully we have a decently sized forex reserve to intervene and absorb excess volatility, historically it has depreciated 3.5% to 4%.

Where are fund managers placing their bet as most stocks are available at a steep discount compared to what to a month back?
As of now we are sitting with some cash, at the peak we had raised 25% cash and spent little on some of the bottoms up large-cap ideas which we feel will not be impacted by the rising interest rates.

We continue to hold ~14% cash and we would look at a gradual deployment of the same.

Are you suggesting your clients hold on to cash or deploy at current levels?
We have been recommending our clients for a while to stagger investments either they do by themselves, or we can do it for them.

Times such as these give us an opportunity to average/top up in equity; hence, investors should continue adding to their equity portfolios in a staggered manner as its very difficult to predict the bottom.

You can’t sell everything and sit out waiting for everything to be all right then invest at that point you will lack margin of safety which will only be available in times like we are in currently.

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


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