Spread the love

India is more expensive than countries like China. FIIs are now reacting to higher inflation and money supply cuts in the West. Liquidity will flow in strange ways and so we never know when they will start to come back, says Deepak Shenoy, Founder & CEO, Capitalmind

In an interview with ETMarkets, Shenoy who is also a smallcase manager said: “Margins for the IT sector will be compressed for a little while, but it is large enough now to be a force that can get much bigger in the future, just compounding on the past. We are biased as we are invested.” Edited excerpts:

Benchmark indices slipped below crucial support levels in April and the volatility could well weigh on markets in May. What is worrying the Street and what is the way ahead?
People always have something to worry about. Crude prices, inflation, war, what not. The way ahead is to continue to invest the surplus money, give the money the freedom to grow, and deal with the volatility.

It’s not very useful to panic when the market is less than 10% down from the peak.

We see a back-to-back double-digit fall in Netflix shares. Is there a learning lesson for India Inc. here? What are your views?
Don’t over-concentrate your positions, you don’t know what can happen. If you don’t like the volatility, set a stop loss, and respect it. Companies don’t love you back, so you should not get overly attached to them.

Inflation seems to be the biggest risk that the equity market faces not just in India but across the globe. How can investors make an inflation-proof portfolio?
You can’t. At some point, there is no anything “proof”. Even steel companies are off their market highs, despite steel prices being close to all-time highs.

In general, stock markets will react to the one thing that inflation will ignite: high-interest rates.

When interest rates rush up to extreme highs, stocks suffer in general. You have to ride out this volatility and be in less leveraged stocks, but you will see a hit in your portfolio regardless of what you do.

FIIs’ exodus is a bit worrying, especially for the 7th month in a row (cash segment of India equity markets). Are global portfolio managers adjusting their portfolio? What seems to be causing the panic.
India’s just more expensive than countries like China. FIIs are also reacting to higher inflation and money supply cuts in the West, for now. Liquidity will flow in strange ways, so we never know when they start to come back also.

Now that we are talking about FIIs – we also have a famous adage “sell in May and go away”. By the looks of it, we might see another month of selling at least in the cash market of India equity markets. What are your views?
Sell in May and go away has not worked in India, tested as average returns between May and September since the last 27 years. We don’t think such adages matter.

Our view is that we cannot predict how many more months they will sell. Don’t predict. React. When they stop selling, we will know, and then we can act accordingly. When they will stop, I have no idea.

Where are you finding value in this market? If not HDFC Bank – where is the smart money moving?
There are always some pockets of value, and some pockets of momentum in the market. We find it attractive to buy into stocks that show momentum even now, if they are large or mid-cap.

There are enough sectors that show this excitement, and we will follow what the prices and results tell us.

There is a lot of talk on and its future plans. What is your view on the stock?
We own the stock, and therefore are biased. It’s a good business and is demonstrating the ability to move quickly, even as an elephant in the room.

You should understand the business well and see the upcoming quarterly result to understand how it has performed and what the moves will be.

What is your view on the IT sector? We have seen some selling pressure in top IT names.
It’s a good sector that is facing bad times in the short term. Margins will be compressed for a little while. But it’s large enough now to be a force that can get much bigger in the future just compounding on the past. We are biased as we are invested.

Amid the increasing interest rate environment, rise in commodity prices — could small & midcaps be under stress in FY23? What should be the strategy of investors?
In general, don’t predict. React. Meaning, what will be under stress and what will not be, is a matter of opinion. Everyone has one. The only truth is what happens, and when that is visible, it is easier to react.

Some companies will do well, some will hurt, and one should understand one’s companies well enough to know if rising interest rates will hurt them. If not, consider just using index ETFs or funds to manage your exposure.

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


Leave a Reply