Share market volatility an opportunity to buy great stocks at cheap price; time to up SIP allocation

Following a volatile September, where BSE Sensex and Nifty 50 lost over 2 per cent, Amar Ambani, Senior President and Head of Research at Yes Securities, believes that volatility gives investors an opportunity to buy good stocks at below fair value. Seeing the current market trends, Ambani sees Nifty 50 is set to cross the previous high of 12,300 in the next four months. As for the investors who already have an ongoing SIP, Ambani advises them to increase their SIP allocation. In an interview with Surbhi Jain of Financial Express Online, Amar Ambani said he expects companies in the staples space to receive a higher proportion of revenue from food, health and hygiene categories. These companies will continue to outperform with valuations becoming relatively attractive after some correction.

1. Amid market volatility, how should retail investors plan their investment strategy?

Volatility is a long-term investor’s best friend. It gives them an opportunity to buy great stocks at below fair value. What we’ve seen is a market consolidation from the start of 2018 to date. Even post March 2020 lows, we’ve not yet seen Nifty revert to its previous high. Therefore, I have no doubt that an exciting period of high returns is ahead of us. Based on the risk profile and asset allocation strategy, investors should allocate to equities and invest with a 4-year horizon.

2. How global factors impact the Indian economy and stock markets? What impact can we see in markets ahead of US presidential elections?

World markets are intertwined. Global issues are bound to impact our economy and markets. With governments and central bankers around the world unleashing heaps of fiscal and monetary stimulus, we see a lot of this money flowing into India, especially when the outlook for INR is stable and weak for USD.

Volatility will be higher during US elections. Victory for Donald Trump would bring things back to usual, as he is perceived to be pro-market. Victory for Joe Biden may cause a knee-jerk reaction, especially post his comments on raising taxes. But in the long term, US elections are a non-event and markets will run their own course. Both candidates are expected to adopt a pro-India stance.

3. What according to you are key risks and triggers in investing in Indian markets?

A resurgence in COVID cases is the obvious near-term risk. So far though, commentary from India Inc, of business coming back on track, is a reason for the market to rejoice. Another issue to watch is the NPA cycle for the Indian banking sector. COVID hit just when we thought that the worst of the banking bad asset phase was behind us. The COVID impact on NPAs will have to be monitored till July 2021. The third monitorable is the old issue around job creation. I am hopeful on this front, on account of anti-China sentiment around the world and our Government’s focus on getting manufacturing to India. Time will also tell how the world deals with its massive debt problem and falling velocity impact on growth.

4. Where should investors invest in the current market? What advice would you like to give to the retail investors making investments via SIP?

Investors should look at adopting a bottom-up approach in the current scenario as India’s growth is not at 8% level. If investors have an ongoing SIP, it would be disastrous to discontinue going by what’s transpired in the last three years. In fact, this is time to increase SIP allocations. Study shows that if you started a SIP after the previous two major market falls and even if your entry-level was significantly higher than market bottom price, you still made a handsome return over 3-5 years.

5. Where will Sensex, Nifty head to by the end of this fiscal?

We expect Nifty to cross the previous high of 12300 in the next four months.

6. Where do you see pharma and consumption stocks? What are your preferred stocks from these sectors?

Companies in the staples space will receive a higher proportion of revenue from food, health and hygiene categories, we believe these companies will continue to outperform with valuations becoming relatively attractive after some correction. Our top picks are Tata Consumer, Nestle India, Hindustan Unilever (HUL) and Dabur India. In the discretionary space, there has been a strong recovery and re-rating on hopes of strong market share gains for leading players across categories, as the unorganized sector has suffered. We prefer sticking to leaders in the low-ticket size consumption like Jubilant FoodWorks, Relaxo Footwears, V-Mart Retail, Page Industries. On durables, we see solid visibility with increasing penetration in India for white goods and a large export opportunity opening up, especially for contract manufacturers. We prefer Crompton, Orient Electric, Whirlpool and Dixon Tech.

On the other hand, pharma companies will enjoy one-off opportunities arising from COVID. US business would get a boost from large albeit one-off supply. We reckon stocks with earnings capacity like Alembic, IPCA, Dr Reddys would continue to outperform. We like mid-cap names like Ajanta Pharma as well.