Should you readjust your portfolios before the next earnings cycle kicks in? Deepak Shenoy explains

‘We are going to see a recovery globally before we see a recovery locally’

ETMarkets.com
Moderate down your expectations because the fundamentals are not going to look good for at least two more quarters.
There is going to be a clear winner and loser cycle in the NBFC pack, says the Founder of Capital Mind.

What is it that you make of the markets? Do you think we will continue to see this liquidity push drive the markets forward or do you believe there is likely to be some sort of an alignment with reality?
The honest situation has been divorced from reality for the last two months. We have also seen a lot of the reality sink in from other perspectives; whether it is companies going bust or lack of demand showing up on profit in any meaningful manner. I think that will happen over the next two months. In fact, next month is going to have a lot of results. We will see some damage and interesting commentary. So the markets are going to be volatile. I think liquidity will only protect us to a certain extent but beyond a certain time, there will be some stocks that will absolutely get beaten down.


Having said that, there is a lot of money in the market. Now it seems like more market participants seem to be playing the markets from a very short-term perspective. You can see these 20-30% moves in certain stocks. For very short-term, there is more speculative action than anything else. So I would warrant a little bit of caution right now in some of these extremely speculative stocks within the largecaps. Moderate down your expectations because the fundamentals are not going to look good for at least two more quarters.

At this point of time which way would you move?
We are going to see a recovery globally before we see a recovery locally. So to that extent, for the Indian investors, having some of their investments in non-India names does make a little bit of sense. You can try to proxy that by some of these approaches. It is particularly better to buy just a US or non-India mutual fund and that will give you some kind of exposure. But also within India, you are seeing FMCG and defensives playing out the pharma pack. The IT pack has not been hurt so badly. I also think credible NBFCs are worth investing in. Do that over a period of time rather than all at once but there is going to be a clear winner and loser cycle in the NBFC pack. I think the winners have done really well. The losers have actually companies that have not reported great results or have shown concerns in the last two months.

I think it is time to use this time period to probably readjust portfolios. We are also looking quite seriously at some of the auto companies and the auto ancillaries to see if we can increase allocations at this time in low end or low cost auto stocks that will do well in the coming few months. Having said that, there are not many stocks out there to buy. So we are being a little cautious at this point; not just jumping in buying a lot. I still think there is more damage in store in the next two months.
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Let us talk about Bharat Forge for a moment. They have been hit by the slump but they are talking about some traction in industrial segments and improvements from the second half as the economy picks up.
I have not been tracking Bharat Forge for a while. But there has been some interesting news coming in over there. At least for California, we have seen some news that says they do not want to replace trucks at least into electric in the next two years. This could mean something interesting for the business but right now, for the next two months, we are not going to see anything. For another quarter or so, we are not going to see a significant improvement.

I feel there are some levers they can move around with but none of those levers have proved attractive. So I do not have a position on the stock and we are not looking at it right now but I would like to see some recovery in the international and the US truck market first. I have not done enough research to say this is not a buy but right now I am not looking at it.

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