Expert view: Some profit booking possible after election results, says Pawan Bharadia of Equitree

Edited excerpts:

Despite concerns over froth, the mid and small-cap indices outperformed the market benchmarks significantly in April. What are your views on it? How should we play the mid and smallcap space?

The so-called “froth” in the mid and small-cap space is primarily in the larger mid and small-cap companies, typically companies above ₹22,000 crore market cap or companies below ₹300 crore market cap. 

The zone between these is closer to its 10-year average and is still far from frothy. 

Our own portfolio is trading at 16 times FY25 PAT (profit after tax) numbers! 

Many of these valuations have been built-in growth expectations and will be tested on the delivery of this growth. 

Early numbers from some small-cap companies have been encouraging, delivering on the expected growth. 

As far as this growth gets delivered, valuations may sustain themselves, and we will see continued investor interest in these companies – and this is what we saw happening in April. 

Going forward, investors need to be more granular or bottom-up in identifying high-growth businesses in the small and mid-cap space, trading at reasonable valuations to generate alpha returns.

Also Read: Stocks to buy: Dr Reddy’s Lab, Cipla among 9 stocks that can rise 6-15% in next 3-4 weeks; do you own any?

How do you expect the market to move for the rest of the year? What are the key challenges that can derail the market’s upward march?

The markets have factored in many positives – earnings growth, stability and continuity in political leadership, reduction in interest rates, etc. 

Negative surprises in any of these may see a disproportionate reaction in the market. As the saying goes, “Buy on the rumour and sell on an actual event”. 

We believe there may be some profit booking once the election results are done. 

This may be a much-needed healthy correction that everyone has been waiting for. 

Some consolidation at those levels should pave the way for a much bigger bull run over the next few years as the ‘Amritkaal’ plays out in the Indian economy.

The market appears to have discounted two Fed rate cuts this year. What if there is no rate cut this year? How will it impact the Indian stock market?

FIIs have been continuous sellers in the Indian markets for the last three years in a row. 

Even in CY24, FIIs have sold to the extent of nearly ₹84,000 crore of which almost ₹35,600 crore was sold in the month of April itself! 

Despite this, the Indian markets have done extremely well and seem to have de-coupled from FII investment trends, thanks to the buoyant domestic liquidity. 

Given this trend, we don’t expect too much impact in the Indian markets, even if there are delays in Fed rate cuts. 

There could be some sentiment-driven negative reactions to the news, if any. 

However, we believe this could be extremely short-lived and should not impact the markets much.

Also Read: US Fed policy: Political stability to outweigh higher interest rate concerns for Indian investors, experts say

How do you see the Q4 results of Indian IT companies? How do you see the road ahead for them?

Q4 results of Indian IT companies have been quite average. The guidance given by most of the large companies has also not been very encouraging either. 

Most of these companies depend on large projects from the US and Europe. 

The fact that these economies are still reeling under the slowdown and have not picked up their own IT spending makes us think growth recovery for Indian IT companies could still be a little distant.

What are your views on the large private banks after their Q4 numbers?

Results for most of the large private banks have been quite encouraging. With Indian GDP expected to grow at nearly 7 per cent, we believe banks – private and PSUs- should continue to do well over the next few years.

Also Read: Indian investors should think about bond investments, say experts; here’s why

What sectors are you bullish about for the next six months?

We remain extremely bullish on our focus sectors like manufacturing, engineering, infra-ancillaries, select consumer plays, etc. 

These are all businesses benefiting from the increased capex spending by the government and various initiatives like PLI, etc., which is putting Indian manufacturing/engineering on the global map in a completely different perspective. 

We are seeing many small and mid-cap companies attracting opportunities which were hitherto not available to them ever. 

All this is ushering in a new era in this segment, which should see multi-year growth and lead to significant wealth creation. 

Our portfolio companies are looking to grow at nearly 25 per cent in FY25, which is on the back of achieving almost 35 per cent growth in FY24!

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 06 May 2024, 11:33 AM IST