Rishi Kohli, CIO - Hedge Fund Strategies at InCred Alternative Investments, expects the next 2 years to be bullish and advises investors to be long on equities. However, one should get cautious as we head into elections, he said.
“There is a lot of talk already that Nifty has over-stretched, etc. but I do not think that is the case,” he added.
Edited excerpts:
Overall, the next 2 years look bullish from multiple perspectives, so one should be long equities. However, one should get cautious as we head into elections as there is a high probability that the euphoria in markets continues till then and there is an over-extension of markets on the upside which could make them volatile or slightly bearish post elections, irrespective of the outcome. So remaining long equities and hedging in the run-up to elections for the second half of the year would be prudent from an equity investment perspective. The other strategies that should do well are long-short and options strategies as there should be enough momentum and larger volatility on both sides to take advantage of for such strategies.
There is a lot of talk already that Nifty has over-stretched, etc. but I do not think that is the case. The forward P/E is still not at 2 standard deviations above the mean or anything close to that which is a sign of overvaluation so while it may be in a short-term overbought zone technically, in the long run, neither is it overbought technically nor over-expensive fundamentally.
We see Nifty at 25,000 by 2024-end.
On a relative basis, smallcaps seem over-extended relative to midcaps and even more so relative to largecaps. So I do expect a healthy rotation to largecaps outperforming smallcaps now in the near term but in the long run, smallcaps have a long way to go so I wouldn’t be worried about them from a long-term perspective but in the near term there is relative rotation opportunity for sure.
Typically, there is volatility and some declines in the Jan-Feb period in markets and given that Indian markets are overbought in the short term heading into that period, I wouldn’t rule out a small correction sometime in this period. However, even large-cap Indian indices like Nifty and Bank Nifty have just broken to new highs recently along with momentum and volume support hence the upside momentum is going to be relatively stronger than the downside momentum going forward. So most prudent thing would be to invest one-third to half right now and balance in phases as the volatility/declines of Jan-Feb are seen
So long equity in phases from now to Feb along with hedging but remaining long-biased equities along with a healthy mix of long-short and options strategies that can take advantage of varying types of market conditions.
FIIs do not have too many choices across the globe of countries with stable governments, healthy fiscal positions, high growth and a large universe of well-managed companies which are all present in India. So India will definitely remain one of the top 3 destinations for most larger investors I think and the trend over the past year where one by one all large institutional names have got bullish on India is expected to continue in the coming year.
Certain commodities look like they could go into a supercycle from next year onwards so that should be something on the radar of investors from both an absolute return as well as diversification perspective.
Broadly, markets and most sectors are looking good for 2024 but on a relative basis, I would be underweight on the FMCG and Oil & Gas sectors.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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