It's a 100% Narendra Modi rally on D-Street, says expert: Is your portfolio immune to volatility?
By Kshitij Anand, ECONOMICTIMES.COM | 12 Mar, 2014, 01.34PM IST
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Analysts say, the current rally is a classic example of a hope based rally as markets are hoping for a Modi-led govt at the Centre in the upcoming polls.
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NEW DELHI: Indian
markets have run-up quite sharply since February to breach fresh highs above levels of 22,000 on the Sensex and 6500 on the Nifty, supported by strong buying by foreign institutional investors and hopes of a NDA-led government at the Centre in the upcoming elections.
The
BSE Sensex managed to rally a little over 1400 points or nearly 7 per cent since February and
Nifty rose 7 per cent or over 400 points, including today's intraday gains.
At a time when there is so much
volatility in the markets, and
benchmark indices are making new highs on a regular basis; how should a retail investors safeguard his portfolio in times of volatility?
According to analysts, the current rally is a classic example of a hope based rally as markets are hoping for a
Narendra Modi led government at the Centre in the upcoming general elections due later in the year.
"We are moving into an election and there is hope that the BJP, led by Modi, will win this election and be able to form a workable government," says Marc Faber, author of Gloom Boom & Doom Report.
But analysts do not rule out the possibility that markets have run-up ahead of fundamentals and in case we have a fractured mandate or a
Third Front government there is possibility that markets and rupee may reverse gains.
"This can be described in one sentence as a 100% Narendra Modi rally. The hope has come in that macro factors will improve," said Mehraboon Irani, Principal & Head-Private Client Group Business, Nirmal Bang Securities.
"Stocks in most sectors rallied but ultimately at the end of it all I can promise that the shirts are going to be off if the election verdict is something different," he added.
Irani is of the view that if there is a case of a hung Parliament, the market will come down to 5%-7% in a day. So we are honestly very sticky wicket as of now despite the fact that we are high but if you ask me the
risk trade is on but honestly fundamentals have not improved much.
So at a time like these, how should investors approach markets? What
stocks and sectors should they invest their money ahead of elections so safeguard themselves from volatility.
In the run-up to the main event investors should look at stocks and companies which can perform irrespective of the election outcome.
From a portfolio point of view, investors can look at fresh air of high
beta stocks, high quality cyclicals as well as the export oriented companies within the IT and the pharma space, say experts.
We have collated recommendations from various analysts on should investors make their portfolio ahead of elections 2014:
Arindam Ghosh, CEO, BlackRidge Capital Advisors
We have always held the view that banks ultimately will
lead the recovery along with high beta stocks as well as stocks in IT and Pharma space. So we need to have a fair mix across all these sectors, probably you can throw in a few of these consumer discretionary names as well.
Our sense is that inflation probably will continue to ease on the back of easing out of food price and that would give little bit of elbow room to the central bank to kind of focus a little more on growth without taking their eyes off inflation.
So overall interest rate sensitives, quality cyclicals and IT, pharma typically should form your portfolio. Investors should keep progressively rebalancing the portfolio in the run up to the election.
Mrinal Singh, Fund Manager, ICICI Prudential Asset Management Company Limited
Although IT and pharma stocks have corrected a bit recently but nevertheless the business outlook for them is good. So if they correct a bit more, maybe we would consider increasing allocation but at this point, we would stay put.
On the cap goods side and the domestic cyclicals side, we will stay invested. The long term outlook is very good. If inflation comes down, in some period of time, we could see some bit of softness on the rates on part of RBI and that could at some point pick up the investment cycle.
So we would like to stay invested on the side of cap goods, domestic cyclicals and things like those.
G Chokkalingam, Founder, Equinomics Research & Advisory Pvt Ltd
In auto ancillary if you see, all of us know the OEM sector is stagnating. Only the auto ancillaries which are catering to the replacement market are doing pretty well namely tyre and batteries and I see lot more score for particularly tyre companies, because most of them are selling almost three-fourth of sales through the replacement market.
In the last five years if you look at the currency, while rupee has depreciated by 38%, Chinese currency has appreciated by 34% and China is now completely getting out of cotton textiles and I firmly believe that the cotton textile for the first time after long gap would start posting consistent growth in the performance and within that sector.
I like Rajasthan Spinning because the dividend yield is very high, it has got about 500 crore worth of branded sales through Mayur Suiting. It has got electricity supply from the group company. Even the subsidiary Cheslind Textiles has already turned around and therefore I firmly believe that this is worth picking up, this Rajasthan Spinning in the textile space.
Pankaj Murarka, Head Equity, Axis MF
IT has been a big overweight for us for the last three years and we continue to remain very positive on the sector, especially because of the improving outlook for the US economy and the improvement in the global technology spends. We continue to remain positive on IT, but having said that, sometime in the middle of last year, we turned positive on domestic cyclicals as well, because we think the Indian economy is going to recover, or has started to show some incipient signs of recovery.
We had started a process of correcting the various macroeconomic imbalances in our economy and as we go along that process, we will see a mean reversion in the economy. So our view on domestic cyclical sectors remains pretty positive and we have been adding to them gradually.
(Views and recommendations expressed in this section are analysts' own and don't represent those of EconomicTimes.com. Please consult your financial advisor before taking any position in the stocks mentioned.)
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