Just 5-6 quality stocks took mkt to record high: Jinesh Gopani

Nifty midcap and smallcap indics are down 19% and 24% respectively YTD. Only oil prices coming off to below $70 or trade war tensions subsiding would take the overall markets up, Jinesh Gopani, Head -Equities, Axis AMC, tells ET Now.Edited excerpts:The markets are at an all-time high. We can look through rose tinted glasses and talk about it but the minute I look at individual schemes, smallcap stocks, midcap stocks, the pain is real. What should one do? The Nifty has crossed 11,000. However, it is just a number. The midcap and smallcap indexes are down 19% and 24% respectively in year to date (YTD). If you take that into account, then Nifty should be nearer to 10,000 number. If you dig deeper, you will see that Nifty has held on because of five to six good quality names. These stocks have been inching upwards and helping the markets to stay where they are. There has been a significant divergence in the last six months where quality and a more fundamental story have taken a lead and the so-called momentum trades have taken a beating. Or maybe, the high beta trades have taken a beating. The good part is it has come off. However, I hope, it is not a near term trade but of a more structural nature. Oil prices, global trade war all are still weighing on the markets and volatility should continue as we have seen in last three to four months. Anything decisive like the oil prices coming off to below $70 or the global trade war tensions subsiding would take the overall markets up. Maybe then we will see a midcap and even the small cap index doing well. But as of now, it is just those five-six good quality stories that have been holding up to the market very strongly. Do you believe this is exactly what the texture of the market is going to be for the next six months as well? There will 15-20 expensive names where there will be growth and visibility and there will be stock underperformance from the other end? If you see the overall scenario, despite yesterday’s price plunge, oil is still at $74-75. So, it is not that that it has come off significantly. The macro concerns around trade deficit or the rupee depreciation, inflation, interest rates going up still remain. The global trade war is having its own impact -- may be not in a big way but will have some repercussions on some of the companies which will be affected if at all these things were to go further from here on. Please do not forget the election season is coming and there always will be some nervousness about the outcome. To that extent, we expect another six to eight months of choppy trade. It will be difficult to get the hang on some of the parameters which are frankly out of our control. The only good part has been that micro India has been doing well, monsoons are decent, earnings momentum should pick up and it will be more stock specific stories rather than a broad based rally.You have to be very careful and choosy. It is not like 2017 where all kind of stocks were going up. Either it was a hope trade or it was an earnings growth momentum. I think this year is more of an earnings growth trade and that is where your money should be. I am looking at your midcap fund and its performance. How have you been able to mitigate the volatility and the downside risk that midcaps have posed? Your one year return is still staying afloat with about 17-18% despite the fact that there has been a fair amount of volatility in broader markets. I also see large chunky positions taken in high price names like Gruh Finance, Bajaj Finance and Page Industries. What has been your philosophy in managing volatility? Our overarching philosophy has to be in good fundamental names and take big bets on that rather than having a 70-80 stock portfolio and trying to play a momentum trade every now and then. We are more of a long-term wealth creation house and don’t look into two-three day kind of a trade. We are trying to churn the portfolio in and out every time. So, it is a very research-based focussed approach on the portfolio construction and frankly that has held on because the beta of the portfolio is lower than the market beta. As I said, in last six month, the entire momentum or beta trade has collapsed because of various factors. It is only the fundamental stocks that have held on and hence the portfolio has held on. It is a good idea to buy quality stocks but they are available at unfathomable prices. Gruh Finance price to book is more than 10, Bajaj Finance is 5-6-7 times, Page Industries PE multiples at 70-80 times. These are great businesses and will survive for a long time but as a money manager, you also have to buy good business at a reasonable price. Where is the price cushion here? If you see the history of these company, they have delivered year after year in different business cycles and that is why there has been a truncated trade which has led to all this valuations going up. No doubt they are high from their averages and obviously we would also like to trim if we have an opportunity in some other names which is offering you a better growth opportunity and valuation. But as of now, if you see the kind of business momentum they are into, the kind of market share gains they have done, and the ability to manage this business cycles without hurting themselves on the asset quality side has helped them and that is why people are flocking to buy those names now. If we get an opportunity to buy in some other better names, then obviously we will try to shift our portfolio. But as of now we feel if you are taking a three to five year view. It is more of a time correction in those stories than a price correction. I am just looking at some of the recent exits and this is your mutual fund portfolio that I have in front of me. It has IDFC Bank, Ambuja Cement, some performers like PVR and TVS Motors. There is growth in PVR and TVS Motors because clearly seems to be siding with them. They are a little expensive but the mantra in this market is you have to pay top dollar for top quality. I would not like to go into stock specific names and so I would refrain from giving answer on that front. However, different funds and schemes have different strategies. It all depends on how they want to position their portfolios.

from The Economic Times https://ift.tt/2uyKKQb