BSE Sensex and NSE Nifty 50 would likely give only single digit returns over next 12 months, as interest rates have risen and growth is likely to slow down, investment advisor Sandip Sabharwal said. On Wednesday, BSE Sensex hit a fresh 52-week high of 62,052.57, and NSE Nifty rose to 18,442.15 levels – both benchmarks indices near all-time highs. In an interview with Surbhi Jain of FinancialExpress.com, Sandip Sabharwal said markets are now trading at a PE ratio of 22 times next year earnings. He advises investors to look for value investments for now; he bets on automobile and ancillary companies along with defence capex oriented companies from both private and public sector. Here are the edited excerpts from the interview:
1. BSE Sensex, and NSE Nifty are trading at new 52-week highs; Bank Nifty has hit fresh all-time high. Do you see further rally in the indices, what would be the key drivers and triggers?
2. How do you look at the current layoffs that are going on in different sectors?
Layoffs are more a USA story. In India the employment picture continues to be healthy and as such not a big issue. Yes there are layoffs in loss making sectors like new age technology companies as well as Edutech companies where they hired aggressively in the case of valuations and now found that investors want profits not sales. This could continue for some more time. However, the traditional sector employment picture is still strong.
3. Which are the investment themes or sectors that interest you?
Key themes that will outperform will still be those that have operating leverage due to economies returning to normal like hospitality, multiplexes retail etc… plus the capital goods sector where the private sector has announced huge new capital expenditure, as well as the infrastructure sector with government push such as Jal Jeevan and green energy sectors, etc. The Capex cycle has revived after 10 years. I also like various Automobile and Ancillary companies along with defence capex oriented companies which are from both the private and public sector. However the next two years will be all about bottom up stock picking and that’s what the focus needs to be.
4. What sectors would you advise investors to avoid?
Export oriented sectors will see pressure and should be avoided. Also given the issues in the global economy commodity sectors should generally be avoided. Chemical, packaging, pharma sectors should underperform.
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5. Do you see any opportunities in mid-cap and small-cap stocks?
Yes many as these sectors typically see huge herd mentality investing and as such being ahead of the curve works. I find sugar stocks as well as railway capex related stocks as broad themes to be good for investors with low risk for the next 2-3 years. Besides this there are many other interesting stocks.
6. Does higher interest rates impact equities?
Yes they do. We have seen the impact globally but not in India yet. However given that Indian Markets have not corrected we will see that future returns overall will be moderate. It is important to focus on value investing with growth triggers rather than in very highly valued stocks over the next one year at least.
7. What are your views on new age internet companies such as Paytm, Nykaa, Zomato?
Most of these companies have been built to increase equity valuations, raise more money and burn the money continuously. As such the next 2-3 years will be tough for them. The performers will be companies that realise that investors want profits now. Among the above given that Zomato is in a duopoly of sorts has the biggest potential of turning around if the management wants to work on that. Overall these companies as a group will keep on disappointing investors.
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