Ignore short-term volatility and continue to remain invested in the market, is the word coming in from BP Singh of Pramerica Mutual Fund. He, however, does not rule out short-term corrections in the market. According to him, every bull run is always accompanied by very sharp short-term corrections. “But investors should ignore this, pick their stocks and stay invested,” he says.
He says fundamentals are improving fasted than anticipated.
Singh says the Indian rupee has appreciated against most currencies, on the back of which exports may take a hit and export-oriented companies may see some discomfort. But all these issues are likely to be short-term.
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He continues to remain positive on IT on the belief that the sector is still undervalued.
He expects company financials to improve from the third quarter of next calendar year. In the second quarter of this fiscal year, he expects companies to report improvement in operating margin, but not in topline.
Below is the verbatim transcript of BP Singh’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: It has become a little tricky for the market now, volatility has crept in. What do you suggest the average investor do at this point, wait on the sidelines or is it still a good time to be going and buying good quality names?
A: Yes, I do agree with you that there are volatilities every day if you look into the market but if you keep comparing week-on-week or month-on-month performance, you notice that the market is going up and so investor is making money if they are invested and they just ignore the volatility. That is a typical of any bull market that there are going to be more people who will continue to doubt whether this rally is sustainable, whether any small event is going to affect it. But let us not ignore that there are many who were sitting on the sidelines waiting for an opportunity to get in.
What we are going through in the last one to one and a half months is if you look at the dollar index, it has appreciated considerably vis-à-vis the various currencies and Indian currency has hold on to it. What clearly indicates that the Indian market is now trying to separate itself from the global markets. So there is really a genuine fundamental rally, which is going on. Now we will see the earnings, which will follow with a lag effect, investors will continue to doubt it but month-on-month we will continue to make money. So we will ignore this, we will recommend people to ignore this short-term volatilities and continue to remain invested, pick your stocks and continue to back it.
Latha: The FII pipe was clearly keeping the stocks fuelled. Now if nobody is buying at – fresh money is not coming in at 8,200 or 8,180 levels, do you see the index continuing to charge ahead? After all we are told that eight months in a row is a very rare occurrence for the Nifty to rise. Therefore, do you think that we are in for some short-term correction but certainly money to be made in six months?
A: I don’t rule out short-term corrections in the market. For example, the simple fact is that the Indian rupee has now appreciated vis-à-vis practically most of the currencies in the world. If that is the case then the exports are either going to come under pressure or the currency will have to give in. Now if either of the situation you will find that the markets might get in for a small correction. But why is that happening? That is happening because the investors are finding this particular market attractive. You cannot have both the things together when your market gets attractive at the same time your currency continues to weaken up. So if you combine these factors, you will notice that every bull market rally is accompanied with a very sharp correction, which is going to be a short-term.
My only advise at this point in time is that how we are planning our portfolio and we are ignoring those short-terms because when we try to focus too much on those short-term corrections, we end up missing the bigger picture, the bigger rally. We are continuing to focus on that bigger rally because the fundamentals are improving much faster than what many people anticipated.
Sonia: In the past couple of weeks, we have seen some defensive moves on the market, IT names like TCS etc have charged ahead, do you think that one should now up their exposure to the defensive names because there could be lot of volatility in the weeks to come?
A: What is happening is that the top-down India has suddenly started looking attractive but when you look bottom-up, you will still not see the earnings. So as a result of which the investors who are coming to the market are rather continuing to focus on the defensives thinking that I need to be in this particular market because the market is rallying but at the same time, they are looking for more conviction. Now, what will happen that the bottom of the earnings will start improving with a little bit of lag effect. For example, auto — if you are discussing just three-four months ago, many people wouldn’t have recommended the auto ancillaries but today the auto ancillaries are one of the favourite stocks.
Similarly, for the cement sector – various such sectors are now picking up. So yes, I completely agree with you that the initial flow, which is taking place into defensive side will gradually move towards other sectors. That phase is going to be slightly with a lag because initial money is all getting concentrated and there is still some amount of scope left in the IT sector and we ourselves are very positive on the sector right now because we clearly see undervaluation,. However, as far as the pharmaceutical sector is concerned, as far as the fast moving consumer goods (FMCG) is concerned, in our opinion, the overvaluation is now building in and I think we are gradually now looking to get out of this and move into the other sectors.