India’s economic recovery is still in early stages and will gain momentum going ahead, said Raghvendra Nath, MD, Ladderup Wealth Management in an interview with Ksh*tij Bhargava of TheSpuzz Online. The market veteran added that investors should use corrections, as the one recently seen, to invest in a phased manger with an eye on the long-term. He further added that sectors such as Infrastructure, materials, corporate banks look attractive to him, keeping in mind the easing of monetary policy. Here are the edited excerpts.
How should investors deal with the kind of corrections we’ve seen recently?
Corrections in bull markets are healthy as they help in moving the shares from weaker to stronger hands and thereby help in long term sustenance of the markets. In that sense, corrections are a normal part of the bull markets and could happen due to various reasons. The current equity markets bull run is led by global and domestic economic recovery along with the opening-up of economies post Covid lockdowns. This recovery has been helped by the massive monetary and fiscal support from central banks and governments.
We believe, that as the ongoing economic recovery in the Indian economy is in the early stage and is expected to gain strength going forward. Hence, we suggest investors to use these corrections as opportunity to invest in a phased manner with a long-term perspective.
Does the Sensex, Nifty correction mean retail investors should consider pulling money out from stocks and shift to mutual funds?
A retail investor generally has a limitation of time, knowledge, and analytical resources to invest directly in stocks. Mutual funds platform provides an efficient, regulated, and cost-effective vehicle to invest in equity markets for retail investors. By paying just a small fund management cost, a mutual fund investor gets the benefit of experienced Fund Managers, who regularly track the markets and the portfolio. Therefore, we believe, for better risk management, it is prudent for a retail investor to invest in equity markets through mutual fund platform.
Some big-name IPOs have received SEBI nod, how should investors see the new age companies that are still in loss but knocking on D-street’s door?
We are living in the digital age, and lot of new age business are emerging. These companies generally are very high growth companies in terms of top line, but as these companies are in process of capturing the market share, hence, they keep on burning a lot of cash to sustain the growth trajectory. It is difficult to value these companies using traditional valuations models. Hence, generally, investors in these companies look at parameters such as, Network Effect i.e., where the value of a product or service depends on the number of users/participants, positive network effect results in improvement of value of product or service; Customer Lifetime Value i.e., the total revenue the company expects to generate during the entire customer business relationship; and Customer Acquisition Cost per new customer and Number of users or subscribers etc.
What sectors look attractive right now?
We believe that the current Economic recovery is broad based and is expected to benefit various sectors. Sectors such as Infrastructure, materials, corporate banks are expected to benefit from the easy monetary policy of central bank and fiscal support and infrastructure spending being provided by the central government.
Post covid, the acceleration in digitization trend and a focus on information technology is expected to benefit technology sector. Helped by the increased spending in healthcare both in private and public sectors the Pharma Sector should also do well. And Telecom sector is expected to benefit from the recent reform and benefits announced by the government for the sector.
Is the party in midcap and small cap stocks over?
With the recent sharp rally, the mid and small cap indices are trading at relatively elevated valuations in comparison to their historic averages. Hence, the probability of correction or a breather in the rally has increased. But, in the growth phase of the economy, the midcap and small cap companies tend to perform better. We believe that the ongoing economic recovery in the Indian economy is in the early stage and is expected to gain strength going forward, hence midcap, and small cap companies should perform better over medium to long-term. Hence, we suggest neutral strategic allocation to mid and small cap segment with the long-term investment perspective.
