Equity markets experts may well be gaining ground in the last few trading opportunities but market are not yet ready to call it a reversal of sorts as sentiments still remain weak amid global and domestic concerns.
According to Sanjay Mookim, Strategist and India Head of Research, JP Morgan, Indian markets could fall further along with weaker global equities and it is difficult to say that the markets have already hit the bottom.
BT: What is your Sensex or Nifty target for end-2022?
SM: Our base case is that the Nifty will deliver zero return from January to December 2022.
BT: Was there any downward or upward revision in the Sensex/Nifty target since January this year?
SM: We haven’t changed the target since first publication in January. The market is currently on track for no returns so far
BT: The Indian benchmarks are significantly down from their highs touched in October last year (they were down 18% till recently). Do you think Indian indices can enter a bear market with a fall of 20 per cent or more?
SM: The sentiment around Indian equity markets has deteriorated significantly. The external environment is tightening with rising inflation and higher oil prices. It is quite easily possible for the Indian market to fall further along with weaker global equities.
BT: Has the Indian stock market bottomed out?
SM: No. It is difficult to say the market has hit a bottom.
BT: If you had to pinpoint 3-4 key concerns for the markets, what would those be?
SM: Global growth is worsening while inflation is rising. Oil prices present a key macro risk for India as this leads to wider current account deficit and pressure on the currency. Domestic growth is also slowing even as valuations remain elevated. Tightening USD availability also leads to fund outflows from India. Indian equities are likely to remain under pressure unless some of these external drags start to reverse.
BT: Are we still in a long-term bull market with the ongoing downswings only technical corrections?
SM: India’s structural growth drivers – urbanisation, demographics and improving manufacturing – are intact. These will also help distinguish India from peer countries. This should make India an attractive long-term market.
BT: FPIs sold nearly $34 billion in nine months. Would the FPI selling continue at the same pace or you expect some sort of reversal or reduced pace of selling?
SM: It is difficult to see FPI flows reverse soon. The [US] Fed is raising rates while the Indian economy is slowing. Unless oil prices ease meaningfully, it will be difficult for flows to return.
BT: Domestic institutional investors and retail investors have been providing much support to the markets at a time when FPIs have been selling significantly. You expect that trend to continue or does the ongoing downswing have the potential to affect such inflows as well?
SM: Domestic inflows are also at risk as the market fails to deliver returns. Retail flows are very dependent on investor sentiment, and can slow now.
BT: If you had to pick 3-4 sectors with a medium-term investment horizon, which would those be? Also, sectors to stay away from.
SM: We prefer domestic facing sectors for the medium term – Financials / Consumer (Staples / discretionary). The theme will be to pick management that can execute effectively and benefit from India’s structural promise
BT: Is this a good time to look for potential multibaggers in small-caps, or is it better to stay safe and go for blue chips?
SM: In general, mid cap valuations are still at a significant premium to large caps. It might be advisable to wait for better entry points.