Investment in MFs are good but to chase your crorepati dream don’t ignore direct equities

Investment in MFs are good but to chase your crorepati dream don’t ignore direct equities

Investors will have a high probability to strongly outperform the market with a long to medium investment view, Vinod Nair, Head of Research, Geojit Financial Services, said in an exclusive interview with Kshitij Anand of Moneycontrol.

Direct equity investment comes with a higher risk & reward model and working as per equity model portfolio is always recommended, he said.

Q) What are your views on the market which has already delivered about 18% return so far in the year 2017? How is the second half of the year expected to pan out? Do you see a Virat Kohli type of master blaster innings likely to repeat in H2?

A) The main factors which have led to a strong performance of the market are; supportive global trend due to the improvement of the economy and strong liquidity, at the same time a resilient domestic economy with reforms has pushed to re-rating.

As a result, market is hoping for a strong revival in domestic earnings growth by pushing the trajectory of the economy into a new phase.

But, till date earnings growth has been muted and is likely to be lackluster in the near-term. Developments on earnings growth will be carefully watched by the market while the start to Q1FY18 result has been weak, which provide a chance of underperformance during the second half of the year.

Q) If somebody comes with you with a monthly investment of Rs15000-20000 to realise his crorepati dream. Can he realise his dream by investing in direct equities or it is better to go via MF route? What is minimum capital required to start trading?

A) Investment through MF is always attractive given its simplicity & diversification of risk with wealth creation over the long-term. This is provided, the investor was able to identify the scheme as per the objective, effectiveness, resources and time horizon.

Every investor should always have an exposure in MF SIP, and the proportion of schemes will depend on the goal and risk aversion of the individual.

Direct equity investment comes with a higher risk & reward model. It is advised to investment through research oriented recommendation through high-quality brokerages.

You will have a high probability to strongly outperform the market with a long to medium investment view. Working as per equity model portfolio is always recommended.

Q) What are your views on TCS and Infosys which declared their results last week? Which one is a better bet and how FIIs or domestic investors are placed in these stocks?

A) Infosys reported better than expected numbers in Q1FY18 with consolidated revenue increasing by 2.7 percent QoQ in CC terms led by improvement in volume (1.7%) and realization (1.8%). On the flip side, TCS witnessed 2 percent growth in CC revenue in Q1FY18 despite robust volume growth of 3.5 percent, indicating pricing pressure in traditional verticals.

Infosys’ management sounded more optimistic on the BFSI space and is hopeful of BFSI vertical to gain traction from H2FY18 onwards given rising interest rate environment in the US (its largest market) and easing the regulatory pressure that would translate into higher client spending.

Besides, Infosys’ impending buyback and an increase in dividend payout worth Rs13,000cr to be distributed in FY18 will limit the downside.

The domestic institutional investors are continuously increasing their stake in Infosys as their current holding stands at 37.5 percent in Q4FY17 higher from 35.2 percent in Q2FY17.

In the case of TCS the domestic institutional investors holding stands at a mere 5.5 percent in Q4FY17 as compared to 5.4 percent in Q2FY17.

Q) Investors grapple with fear of investing at peak. What do you tell your clients to calm their fears?

A) Valuation is high so investors should be watchful and some consolidation can be predicted but it will be welcomed as an essential correction for the market.

This fear should be accepted by the investor and used as an opportunity. And, they should continue to invest in sectors and stocks which are over a strong and positive earnings trajectory. Hedging can also be considered by the active investor.

Q) Any particular instance you recall when you were interacting with your clients which were funny or made you think twice about the problem or taught you something?

A) We welcome all the varied type of retail investor’s query as a relevant question. A good part of retail investment query continues to bear with small and penny stocks which we continue to address and advise a change in their investment style and shift to core investment of wealth creation. But, if we look over the last 5yrs the mix of penny stock query has reduced.

Q) Which sectors are on your shopping list and which ones are in line where you would like to book profits?

A) We are suggesting retail investor focus on sectors and stocks which have sound historical fundamental with healthy earnings growth outlook. Since valuation is near all-time high which is adverse to risk-reward ratio.

We have a positive view on Infrastructure, Capital Goods, Chemicals, Private Banks, auto & auto ancillaries (4W & CV). At the same time, we have a cautious view on IT, Telecom & NBFCs and a positive constructive view on Pharma.

Q) Lot of money managers are sitting on cash levels and waiting for a dip. Hence, any big correction, if any will be bought into. What are your views?

A) The Strong performance of equity market in spite of the lack of historical earnings growth has shifted DIIs to cautious, due to high valuation. But, still, there is a limited chance of a big cut in the market since the outlook for EMs is solid due to improvement in economy and ease in USD liquidity.

At the same time, liquidity from the domestic institution are also solid with the outlook for earning growth by FY19. In the near-term economic is likely to benefit from the good monsoon, cut in interest rate and progress over NPA restructuring. Hence every dip is likely to be brought as an opportunity.

Q) FII flows have been pretty steady so far in the year 2017 and with Yellen dovish stance, do you think the flows will only increase pushing benchmark indices even higher. What are your views?

We have a target of 32,000 for Sensex by March 2018, which is flat compared to current level. This is based on 15% EPS growth in FY18 and 17.5% in FY19, compared to 20% CAGR expected to the market.

Hence we expect some consolidated in the main index but the solid performance of the broad market. Our target is subject to change in quarterly result and change in outlook.