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“Capital Goods and Infra is on a structural upswing and if the BJP retains the majority in General elections, as is widely expected, this sector will do even better considering years of under-investment,” says Dipan Mehta – Founder Director at Elixir Equities Pvt. Ltd.

In an interview with ETMarkets, Mehta, said: “At corrections all investment themes are good, but preference will be for consumer-oriented stocks in Retail, Travel, Hospitality, Healthcare etc.” Edited excerpts:

Nifty has run into some turbulence ahead of the Interim Budget 2024. What is weighing on D-Street or is it just profit taking?
Dipan Mehta: An expectation gap is what has led to a correction. From the end of the last earnings season (Sept 2023 quarter) to now, the Nifty has rallied by about 10 %, and from the end of the Dec 2022 earnings season, the gain is 22%.

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Small and mid-cap stocks have rallied even more on the expectation of good corporate earnings and improved fundamentals, but actual earnings releases for the quarter ended Dec 2023 may be slightly tepid and downgrades are leading to price corrections.

Long-term earnings trajectory is not impacted but a soft quarter due to base effect and mild consumer slowdown is not unusual and that can lead to a correction in stock prices.

Do you think Indian markets are trading at a large premium compared to historic averages and peers? But in the past, we have seen markets sustain rally even though they might be overvalued.
Dipan Mehta: Yes, bull markets always coincide with valuations higher than historic averages and peer comparison, but earnings releases do lead to a reality check and part of this over-valuation can be corrected from time to time by providing good entry points.What are your expectations from the Interim Budget 2024?
Dipan Mehta: None at all. As has been the trend, Budgets are becoming a non-event and rightly so. I don’t even remember any of the proposals of the last Budget. Does anyone? A few years ago, the Budget was the most important macro event.Now RBI policy and inflation reports play a more important role. The two most important contributions of the Finance Minister, which is unparallel, are the stability of the tax regime and realistic projections/assumptions in the Budget numbers.If someone is planning to put in money at current levels – do you think risk-to-reward is favourable? What is the kind of time horizon that one should look at if someone is putting in fresh money?
Dipan Mehta: Not inclined to invest at this juncture at some point in 2024 the 200-day moving average which at present is around 19,500 will be tested. Those are good entry levels.

Which sectors are you overweight on for the year 2024?
Dipan Mehta: At corrections all investment themes are good, but preference will be for consumer-oriented stocks in Retail, Travel, Hospitality, Healthcare etc.

Any play on rising consumerism and premiumisation should be given priority.

These stocks have traded at high valuations for decades and one can buy only during steep corrections to get the best returns with least volatility.

Are there any sectors on which you think one should go underweight on or book profits?
Dipan Mehta: Materials and Speciality Chemicals.

Are there any sectors where structural stories are continuing and why?
Dipan Mehta: Capital Goods and Infra is on a structural upswing and if the BJP retains the majority in General elections, as is widely expected, this sector will do even better considering years of under-investment.

We have seen more SME IPOs hitting D-Street so far in 2024 compared to mainboard ones – what could be the possible reason for this? Do you see more SMEs coming on to D-St as an encouraging sign?
Dipan Mehta: No, there is a lot of froth in SMEs and many investors may get carried away. Low floating stock is also a negative factor as also relaxed disclosures.

This is the riskiest segment of the Capital Markets and hope Regulators and Exchanges are monitoring closely.

We have seen a swift move in railway stocks in the past few weeks. What is driving the rally?
Dipan Mehta: Increased budgetary allocation has led to the best-ever performance of Railway stocks. This sector has good potential but is presently fairly valued.

How should one look at the small & midcap stocks? There are mixed views in terms of valuations.
Dipan Mehta: The mantra for long-term investing is buying good quality businesses at reasonable valuations. There are many good quality businesses particularly small and mid in size, but valuations are very rich.

Most companies that have the potential to grow at 15-20 % for an extended period are trading 60 times plus trailing 12 months EPS. Difficult to make decent returns if one is buying stocks at 3-4 times PEG (price to earnings growth).

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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