The past few days have been brutal for investors, as the stock market has been bleeding losses. But some investors are using this ongoing stock market route to do some bargain shopping.
Prashant Jain, the executive director and chief investment officer (CIO) of HDFC Asset Management Company, however, has some suggestions for them. He has suggested positional stock market traders/investors to go with the large-cap stocks rather than mid- and small-cap ones.
He had some other suggestions for investors too at the webinar titled ‘Mid-Year Review of Indian Economy and Markets’. Read here to know about them.
Stock Market Index
Jain said that by comparing the small-cap index with Nifty 50, which is a large-cap index, it is possible to formulate that the small-cap index has actually corrected much larger than the large-cap index in the first half of CY22.
“Nifty 50 index has witnessed lesser correction in the first half of CY22. So, it’s better to look at large-cap stocks ahead of small-cap and midcap stocks,” he said at the webinar.
He further said that he expects inflation and higher interest rate to go hand-in-hand with the stock market. Thus, if he had to pick any stock or sector, which could be insulated from the rising inflation and commodity, then those sectors would be software, IT or pharma stocks.
“We all know the weight of IT and pharma stocks in Nifty 50 is around 20 per cent, and it is this 20 per cent of stocks that is expected to remain unaffected by rising inflation and interest rates. But an opportunity may have opened in IT, where the recent market-wide sell-off has actually pushed the price to earnings (P/E) multiple of IT companies at attractive levels,” he said.
“The IT sector weighs around 15 per cent of the net strength of Nifty 50 index, whereas pharma weighs around 5 per cent. So, around 20 per cent of Nifty comprises those stocks that are expected to remain unaffected by rising inflation and interest rates. After the recent sell-off, PE multiple of IT index has come at attractive valuations as well,” he added.
According to him, while the 20 per cent weight in Nifty 50 could be for IT and pharma, the bulk weightage still lay with banks and other financial services companies. Around 35 per cent of the weight in Nifty 50 lay with the financial services companies, he said.
He further said that India’s corporate profitability and the balance sheet of various banks were also healthy, which would mean there won’t be much variation in their price in the medium- to long-term, especially in a rising interest rate condition, such as now.
“Banks should see a good increase in loan books because of the composition of assets,” he said.
Jain said he expected a higher trade growth as a result of the higher inflation, which in turn could lead to better quarterly numbers in various companies in the medium- to long-term.
He further said that the next decade will be quite promising for the Indian economy in general, since it is widely expected that India will overtake China in terms of number of working population. In addition, India has also gained cost competitiveness over China, which will aid India in becoming the fifth largest economy in the world in the short-term.