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India in biggest bull mkt ever; midcaps to outperform: HSBC

Indian equity market is going through a multi-year Bull Run right now, says Dhiraj Sachdev, Vice President & Fund Manager, HSBC Global Asset Management (India).

In an interview with CNBC-TV18, he says that any correction seen in the market will be short-lived. In fact, it would be seen as an opportunity by those waiting on the sidelines to enter the market, he feels.

Continuing his optimistic tone, he adds that with pro-reform and business-friendly government coming to power at the Centre, one can expect more improvement at the macro-economic level.

Midcaps have been on fire in this rally, however those looking to play this space should adopt a selective approach, he recommends. “While abnormal gains of the last one year and last six months are over, even if we expect about 20-25 percent returns from the market, the midcaps may do much better if the market delivers about 20 percent growth going ahead,” he adds. 

Below is the verbatim transcript of Dhiraj Sachdev’s interview with CNBC-TV18’s Sonia Shenoy and Anuj Singhal.

Sonia: What have you made of this Supreme Court judgement, we understand what the implications are on individual companies but what would the ramifications be on the economy as a whole?

A: In the near-term, it is one of the worst outcomes that were not discounted by the market. But it ensures that in future there will be greater transparency in terms of allocation of coal blocks. So from a longer term perspective, yes, it is positive. In the near-term it will have some implications and heavy penalties, which will impact earnings of many of the power companies.

Anuj: What about investments in the country overall. Do you think there would be a bit of a problem in terms of this creating fresh bit of uncertainty?

A: I don’t think so. It will certainly derail it to the extent and create some kind of challenges on the near-term side in the power and coal allocation. This is because if coal has to be imported for power companies then they will have to incrementally shell out about almost USD 2-3 billion on imported coal alone. So that will impact the earnings in a major way. But overall, I don’t think it will derail the entire investment cycle going forward.

Anuj: I am just reading your views and you believe that what we are going through right now is biggest bull market ever; would you say that it is going to be even bigger than the one we saw between 2003 and 2008 and what would be different this time around?

A: We maintain that view. It would be one of the biggest and multi-year bull market and to our view any corrections will be short-lived and only invite new money which is waiting in the sidelines to enter the market. Let us not miss the bigger picture. There is a change in guard at the Centre which means better governance, growth and job creation and on top of it all the economic issues which were hurting the Indian market in the last four-five years are showing signs of reversal.

Take for example, the lower Gross Domestic Product (GDP) growth rate, that could be the thing of the past or poor investment cycle are really created out of policy issues or bottlenecks out of environment concerns, coal linkage issues etc that is also expected to revive going forward or even some kind of a receding inflation number. At the macro level things are showing signs of reversal for the better and at the top down level we are encouraged by a new sentiment and the change in guard at the Centre.

Sonia: The first part of the year has been exceptionally good for the midcaps however in the last one or two months things are getting a bit tricky. Do you think the best of the midcap performance is behind us or is this just a slow phase in which one should continue to accumulate good quality names?

A: The abnormal gain period is over, but it will still ensure that there will be steady and better returns from the midcaps going forward. Midcaps as a basket is pretty misunderstood. Yes, to an extent we agree that it has run ahead of time and there will be some re-treatment, but a large part of the market is on the midcap side is still under research because there are about 3,000 to 4,000 companies.

There is a vast ocean of universe of mid and small companies. So you will always find that many companies are under-researched and as a result of which miss-appraised and mispriced resulting into undervaluation. So our job is to be selective in our approach and find the right companies to ensure better than the market average returns going forward.

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