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'One should not be aggressively investing lumpsum amounts in the US markets. Fresh investors could look at doing SIP in US markets if they are too keen to take an exposure now,' says Deepak Jasani of HDFC Securities.
'One should not be aggressively investing lumpsum amounts in the US markets. Fresh investors could look at doing SIP in US markets if they are too keen to take an exposure now,' says Deepak Jasani of HDFC Securities.

Time to book partial gains in US stocks, says Deepak Jasani of HDFC Securities

  • Jasani shares his top picks among the largest companies
  • He also discusses his expectations from the market around US Presidential Elections

Extraordinarily high returns by the US stocks in the past few years have attracted Indian investors to invest in international equities directly or through mutual funds. We spoke to Deepak Jasani, Head of Retail Research, HDFC Securities for his views on investors' gaining interest in US stocks. Jasani also shares his top value bets and his preferred large cap companies for investors to look at. "Out of our open fundamental calls as on date, we think Aurobindo Pharma, Axis Bank, Maruti Suzuki, Ultratech Cement and SRF could give decent returns over the next few quarters," said Deepak Jasani. He also shared his views on performance of value stocks.

What is your view of the market? Where do you read them going in future?

Going by the current momentum on the date of writing this (Oct 20), Nifty could gradually keep rising. New high for the Nifty is barely 5% away. Though this seems very much achievable, the so far underperforming sectors like Oil & Gas, PSU, Capital Goods etc will have to start performing for the Nifty to reach the previous high. A lot will depend on the results from these sectors and the management commentaries from the companies in these sectors.

Also we have the US Presidential elections on Nov 03. If the process of elections is smooth, we may witness a small rally post the results. At that time, Nifty has a fair chance of reaching the previous high. However mind well, post this rally an across the board unwinding/profit taking seems likely ahead of the calendar year end.

Which are the top five picks among the largest companies for investors?

Out of our open fundamental calls as on date, we think Aurobindo Pharma, Axis Bank, Maruti Suzuki, Ultratech Cement and SRF could give decent returns over the next few quarters.

Do you expect any specific sectors and stocks to out grow or fall in near future amid US presidential elections. Any sectors or stocks to avoid given US elections and COVID pandemic?

Impact of US elections on Indian markets will be more a function of changes in global risk-on sentiments. In case the election is smooth and non litigatious (largely due to mail-in ballots), the event may not have any major impact on US markets and hence on the Indian markets (barring the 2-3 days of anticipatory volatility and post unwinding).

However if there is no clear winner due to litigation and controversies, US markets may be negatively impacted and this may have some effect on Indian markets too.

Historically Democrat rule brings in higher average US GDP growth ~100bps higher. They are also more trade friendly, with US imports showing a faster growth. Corporate profits, employment and wage growth show better growth rates under Democrats. On the other hand under Democrats, inflation and interest rates are higher due to better economic growth. To a market that loves low/negative interest rates, this may sound negative.

Hence depending on the outcome, if democrats win, global trade will get a boost, IT sector in India will face lesser restrictions in US. However interest rates globally may start to rise (this anyway had to happen – a democrat win will only prepone it). In such a case the overall flows into equity markets globally may get impacted.

Which are your value picks?

Value as a theme has underperformed globally over the past several years (especially after the GFC). Growth stocks continue to be in favour and investors are willing to pay valuations that seem very high by traditional standards to participate in growth stories. This situation may not reverse in a hurry.

Value stocks traditionally have done well when the markets remain sideways for long or are in a down trend. Even in a downtrend they may not generate absolute returns but may relatively beat growth stocks. A lot of sectors seem to be value buys currently including PSU, Oil & Gas, select private Banks/NBFCs, holding companies etc; however each of them have reasons for underperformance so far and there is not enough confidence that those reasons are no longer valid.

Thanks to extraordinarily high returns by the US stocks in the past few years, investors have gone crazy after investing in US stocks and mutual funds investing in international equities. Do you believe US equities are overvalued and it’s time to go slow on them now?

Irrespective of the election outcome, once the dust settles, we may see gradual unwinding of positions in the US markets resulting in a correction, with Indian markets following course. This is more relevant as we are approaching the calendar year end which coincides with year-end profit booking and tax selling. US markets are significantly overvalued based on historical ratio of total market cap over GDP (currently at 181.4%). However one may have to look at nontraditional ways of assessing how pricey stocks have gotten, given the nature of the biological disaster that helped to spark the rout in markets back in March.

Hence on an absolute basis and based on the near term triggers, one should not be aggressively investing lumpsum amounts in the US markets. Existing investors may look to book part gains while fresh investors could look at doing SIP in US markets if they are too keen to take an exposure now.

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