If you are underinvested in the equities, this is a great time to accumulate stocks via SIP and if you are overweight, reduce the allocation on rallies, Devarsh Vakil, Head, Advisory, HDFC Securities, tells Moneycontrol’s Kshitij Anand in an interview.
Edited excerpts:
Q) A volatile week for markets but the good part is that the Nifty50 held on to 9,000. Will the rally continue in the truncated week?
A) The RBI’s assessment of the macroeconomic impact of the coronavirus outbreak that “risks to growth are acute” weighed on markets. US investors pointing to elevated tensions between Washington and Beijing and a stream of poor economic data, including another 2.44 million job losses last week, contributed to a lackluster buying mood on the Wall Street.
This brought the total number of Americans out of work during the COVID-19 pandemic to nearly 40 million, or nearly 20 percent of the labour force, on a seasonally adjusted basis.
US Senators introduced a bipartisan bill that would sanction Chinese officials and entities that enforce the new national security laws in Hong Kong. There are concerns that China may be tightening its grip on Hong Kong and it may trigger another wave of pro-democracy protests.
These events came a day after the Senate passed legislation that would effectively bar some Chinese companies from listing on the US stock exchanges. Those tensions marred sentiments for the bulls.
Q) The NiftyBank fell more than 2 percent on May 22 and was also one of the top losers of the week. What should investors do if they have a bank-heavy portfolio? Do you think some of the banks are available at reasonable valuations for new investors who can take risks?
A) The Bankex index fell around 8 percent this week. Investors who are heavily overweight on the banking sector should reduce exposure to this sector on rallies. If you are invested in the second-rung financials, move immediately to market leaders.
We are of the opinion that investors will do well if they wait for better bargains to emerge in the banking sector to become aggressive.
Q) What are the important events and Nifty levels to track during the week?
A) We believe that the Nifty50 is consolidating in a broad range of 8,678-9533 and traders should wait for lower levels of the range to build long positions.
Q) A negative growth is something that may have got investors worried. Should investors turn conservative from aggressive in this period?
A) It depends on the asset allocation strategy of the individual investor. If you are underinvested in the equities, it is a great time to accumulate stocks via SIP over the next few months. If you are overweight on equities, reduce the allocation of rallies.
If you are leveraged, reduce it and adopt a capital conservation stance.
Q) Any rate-sensitive stocks that can benefit from the RBI surprise rate cut and why?
A) We do not believe financials will benefit from the surprise rate cut. The MPC has conceded that the credit growth will remain muted.
The traditional easing of interest rates is not going to solve the problem of the banking sector. There are two major issues with the sector. First, the creditors are reluctant to take on duration risk, so in longer term capital is difficult to raise.
Second, lower-rated borrowers are not able to raise capital even at substantially higher spreads.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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