First of all, share your opinion on benchmark indicators. Great move as we are waiting to see that all-time high and in just one month, in the month of August, the Nifty 50 hit record highs for the second time. Where do you see the market moving and what exactly do you see bullish in your opinion?
Gurmeet Chadha: So, congratulations to all the investors and I think this is just one of the many all-time highs we’ve hit as we embark on our journey to 10 trillion this decade. But I think what has happened in the last few weeks has been quite positive for India especially the macro setup.
Crude is around $80. The dollar index has dropped to around 100 from the 104 level. The Fed chairman has said that the direction is now clear in terms of the start of the rate cut cycle, although he did not comment on when and by what quantum, but I think the market is starting to price in now. There will probably be a rate cut of around 50 to 75 basis points over the next six to nine months led by the US and us.
And in general, I think the overall macro setup is good. Current account deficit is less than 1%. We are still the fastest growing economy. The only worry and worry I have is the slower earnings growth in Q1. So, as we celebrate new milestones, it’s important not to lose sight of evaluation. Markets are currently in a reasonable zone. Nifty is 21 times ahead and mid and small cap indices are over 25 times. So, you should be careful with regard to additional deployment. But yeah, I mean, like I said, one of the few milestones, I think there’s a lot more to come in the long run.
But the other part is that there is a consensus view that there are some valuation concerns but no one can question the market moves that we are seeing. But there’s a lot of churn in the sector that’s happening and what we’re seeing is that investors are now focusing their attention on some defensive plays, some of the underperformers maybe the IT and pharma space and sectors that have done that. Like defense and railways in the past, they are taking a bit of a back seat. But where do you think investors can focus right now and have a good chance of seeing some good moves and anticipating some decent moves in this market setup?
You are right, I think sector rotation is sharp and very fast. Six months ago no one was ready to look at IT and pharma. The same IT stocks, Infosys was Rs 1200, TCS was 3000, HCL Tech and Tech Mahindra were around the 1000 level, I think briefly even sub-1000, same was the case with Pharma and FMCG.
So, rotation is always fast and IT, pharma is very defensive and it all started when we saw yen carry trade unwinding, investors in IT and pharma and some turmoil in FMCG.
I think we have to look a little bit further and if you’re a little bit ahead of the cycle that’s the reward. I think now that we are clear that we start with the rate cut, I think the financials may come back, especially the NBFCs which are completely out of favor, because the NBFCs rely more on wholesale sources of funds versus banks and still Also has CASA.
So, considering how the broader market has fared, many of the better NBFCs have really underperformed in the last couple of years. So, I think a good quality NBFC can be one. I think the private banks again, the big private banks have been in a category whether it is ICICI, HDFC, Axis. So, I think the financials will make a comeback. Even rate sensitive, a combination of realty and cyclicals, I think can do a little better.
But like I said, just be careful. We have earned good money. Preserving some of those gains is just as important and I wouldn’t mind some diversification into bonds and gold considering interest rates are likely to fall. Given the geopolitical turmoil we have with such long duration bonds and gold may also deserve some allocation in the overall portfolio.
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