Expert View: Market mood positive but keep valuations in mind; IT can be a good bet, says Arpit Jain of Arihant Capital

In an interview with Mint, Arpit Jain, Joint MD at Arihant Capital said capital goods, railways, defence, hotels, FMCG and banking are some of the sectors that look attractive for the medium term. Jain also believes one can take bets on IT stocks with a two-to-three-year horizon.

Edited excerpts:

What is your take on the prevailing market mood? Is it the right time to buy stocks?

The prevailing market mood in India is positive, with many companies posting strong results in the last quarter of FY23 and the beginning of the new financial year 23-24. 

Reliance Industries announced a very good set of numbers, posting its highest-ever quarterly profit. 

FMCG and banks also posted good numbers while the major disappointment was from IT companies.

As for investing, it's important for investors to exercise caution and focus on valuations before making any investment decisions. 

While several companies have reported good earnings, the markets have also rallied in the past month, leading to higher valuations for many stocks. 

As such, investors should carefully evaluate each company's fundamentals, including earnings growth, cash flows, and management quality, before making any investment decisions.

Inflow in equity-oriented schemes dropped by nearly three times on a month-on-month basis in April. How do you see it?

The world has witnessed a series of dramatic changes in FY23 with surging interest rates in the US, causing a series of economic events worldwide. 

The interest rates in India, as well as elsewhere in the world, have moved up substantially, making debt an attractive asset class. 

Overall, the 42-player mutual fund industry witnessed a sharp turnaround in April as it attracted ₹1.21 lakh crore on huge contributions from debt-oriented schemes after seeing an outflow of ₹19,263 crore in the previous month.

When looking at the month-on-month comparison in April, the financial markets may have seen higher flows in tax-saving schemes in the month of March. Therefore, a comparison on an average basis will be a more apt comparison.

What could be an ideal portfolio for the next two-to-three years? Would you recommend increasing exposure to equities?

A well-diversified portfolio that balances equity and debt investments is generally considered a wise approach for investors. 

In the current global investment scenario, India is emerging as an attractive destination for investments due to its promising growth trajectory, particularly in sectors such as infrastructure, railways, and defence.

One notable aspect of India's financial sector is the resilience of its banking industry, which has weathered global financial failures better than many other countries. 

However, with valuations not being very cheap at present, investors may consider gradually increasing their exposure to equities in tranches to achieve the desired portfolio mix.

If one has to invest for the medium term, say for a year or so, what sectors should one bet on?

While planning to invest for a medium-term horizon of around a year, it's important to consider sectors that are likely to experience growth during that time.

Some sectors that currently show good potential for medium-term growth include capital goods, railways, defence, hotels, FMCG, and banking. 

Additionally, the IT sector is expected to bottom out in the first half of FY 24, which may present a good opportunity for investment. Many auto companies have also exceeded their pre-Covid sales and are looking attractive.

However, while these sectors may offer good potential for growth, it's crucial to also consider valuations before investing. High valuations may make even a promising sector less attractive from an investment perspective.

Do financials still have some steam left? Can we take a contra bet on the IT sector?

The Indian financial sector has shown resilience and strength amidst global banking failures. With better asset-liability management, Indian banks have largely weathered the economic downturn and are expected to continue performing well. 

While credit growth may slow down slightly in the current higher interest rate regime, there is continuous improvement in the asset quality of banks. The undertone of the sector is positive, and we may see some consolidation at current levels.

As for the IT sector, investors with a three-five-year perspective can start accumulating it. The sector is expected to bottom out in the first half of FY24, and a contra bet on IT may present an opportunity for growth. 

The sector has faced headwinds due to Covid-19, but with the rise of digital transformation and remote work, the sector may see an uptick in demand for its services.

There is a strong expectation that the Fed will take a pause from here on. What do you think? when can we see a cut in rates?

The Federal Reserve has been closely monitoring economic data and inflation trends to determine whether to continue with its current monetary policy or make changes. If inflation starts to cool off, the Fed may decide to take a pause from raising rates. 

The Fed is also likely to consider the progress of various macroeconomic data points, such as GDP growth and employment rates, to determine when and if rate cuts are needed. 

The timing of the Fed's monetary policy changes is difficult to forecast because it depends on a variety of socio-economic variables, it is nonetheless crucial to keep this in mind.

Disclaimer: The views and recommendations given in this article are those of the expert. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.