The India VIX, also known as the volatility index, has surged more than 100% since April 23. A couple of factors, including the ongoing General Elections and sustained selling pressure by foreign institutional investors, weighed on market sentiment. Meanwhile, the NSE Nifty index fell more than 1% against its all-time high scaled on May 3. What lies ahead for the market? In an interaction with Business Today, Siddharth Oberoi, Founder of Prudent Equity, shared his insights on the equity markets, election outcome and sectors that may deliver robust returns to investors going ahead. Edited excerpts:
How do you see the market performing till the election results are announced on June 4?
As we were entering 2024, it was clear to us that this year would be marked by volatility. Historically, as we approach elections, the market tends to experience turbulence fuelled by rampant rumours. Until a few months ago, the market seemed to be pricing in continuity following the outcome of the December results. However, more recently, there has been increased volatility. Regardless of the election outcome, there will be buying opportunities. If the outcome is favourable, we anticipate the government will focus on sectors it has previously supported. Conversely, if the outcome is unfavourable, there may be a knee-jerk reaction, but certain sectors, which have consistently outperformed regardless of political factors, will still offer buying opportunities.
Which sectors and stocks may deliver solid returns to investors if Prime Minister Narendra Modi returns?
Companies tied closely to the economy are poised to deliver robust performance. Our portfolio has been bullish on sectors like industrials, infrastructure, and construction, among others. Additionally, selectively investing in public sector undertakings (PSUs) where valuation remains favourable may also yield decent growth. By focusing on these sectors, we aim to capitalise on the anticipated economic growth and potential investment opportunities they present.
Under what circumstances do you expect a sharp fall in the market? And by how much?
We don’t engage in market timing. Instead, we prioritise establishing the right asset allocation. It’s more crucial to have the correct balance of assets in place than attempting to predict market fluctuations. With a time horizon of 24 to 36 months, a well-diversified blend of equity and debt is likely to provide fruitful returns in the long run. This approach focuses on long-term goals and mitigates the impact of short-term market volatility.
What is your view on mid- and small-caps over large-caps?
We maintain a strong belief that value persists in select mid-cap stocks, with over 50% of our portfolio allocated to this segment. Our top positions consistently report over 20% profit after tax (PAT) growth, demonstrating their robust performance. Importantly, many of these companies are still attractively priced, with forward price-to-earnings (P/E) multiples ranging from 15-20, and even some below 10, offering significant comfort.
Our investment philosophy follows a bottom-up approach, focusing on analysing individual companies in depth. We believe that solely relying on index performance, especially small- and mid-caps can provide a skewed picture of market opportunities. The primary objective when investing in small- and mid-cap stocks is to filter out low-quality or underperforming companies, a task the index often fails to accomplish. Consequently, the index may not provide an accurate portrayal of this segment.
What is your advice to new investors?
Make reading a habit. Whether it is related to books on investing or successful investors, articles or any material that ensures you understand the various aspects of the business world. Each investor is different. You need to understand yourself and your investing style. Formulate your own investment principles and adhere to them.
Why are you bullish on the PSU basket?
With an allocation currently hovering slightly above 20%, our investment strategy has a very dynamic approach to PSU stocks. These holdings encompass PSU banks, housing finance, power, and railways. The rationale behind this allocation is grounded in the anticipated remarkable earnings growth forecasted over the next 12-24 months. Moreover, considering the favourable valuations, the risk-reward balance significantly favours our investment stance in these sectors.