'Keep booking profits, have modest expectations'

Sharmila Joshi, Co-head, Private Client Group, Emkay Global Financial Services, spoke to R. Sree Ram about the right strategy to adopt in the current market scenario.

Even though domestic economic indicators remain robust, lack of encouraging global cues is holding back the Indian equity market. What are your views on the international economic scenario and its possible impact on the Indian stocks?

There seems to be a slow realisation in the Indian market that bad news across the world does not necessarily mean the situation will worsen here. As a result, apart from the choppiness in May, the markets have stayed within range and the FII (foreign institutional investor) flows have been positive. We have seen a correction from time to time, but the markets will move up once the global cues stabilise. Though we have inched to this new high, the Indian markets are continuing with their bouts of indecision and nervousness on the back of a spate of bad news from overseas. Therefore, we need to keep taking money off the table, stay stock-specific, keep an eye on the FII flows and an ear open for news from abroad.

For how long do you expect the weakness in global markets to continue?

It looks like it's going to take the US a couple of more quarters to get over the double-dip fear. Europe normally lags behind the US by another couple of quarters. Investor confidence seems to be at the lowest in the US and Europe if the government bond yields are anything to go by. What has been encouraging is that a lot of corporates in the US and Europe have posted fairly good figures. The value that they now offer will, at some point, compel investors to return to equity.

There is a growing consensus that Indian equities need to correct by 5-10% or consolidate at the current levels for some time. Do you agree?

Consolidation is always good. It ensures that stocks change hands, new investors come in and there is less chance of an investor being stuck with a stock. If this means a correction of 5-10%, then that is what the markets will do. But there will have to be a reason for this correction, which, as of now, is not apparent. So, in the absence of a reason and given that the markets are inching higher, it will be interesting to see the point at which the correction happens.

Do you think the markets will generate lower, single-digit returns for the rest of the year?

For the past several months, the market has been stock-specific. If you have invested in the right stock at the right time, and even if it is not a runaway kind of stock, its price has doubled or tripled. If you have participated continuously, there is no reason why the returns should be bad. At a market level, this call is difficult to take, but many stocks across sectors have given decent double-digit returns.

During an uptrend, the stocks that had lagged the broader market tend to catch up due to low valuations and excess liquidity. Do you think the stocks that have underperformed the market so far might lead now?

This is precisely what has happened in the past couple of weeks. Cement stocks are finding favour, so are stocks in the capital goods space. Pharmaceutical stocks will continue to attract investment. If the uptrend in commodity prices, especially metals, continues, we may see participation by metal scrips as well. Also, it certainly seems a good time to be invested in the frontline stocks which, too, have faced a lag in the past few months.

If a correction takes place, which stocks or sectors might witness the maximum impact?

Typically, the last sector to rise is always the first to correct because a lot of momentum players are invested in such stocks. It is, therefore, a good idea to book profits continuously as and when the opportunity arises and then reinvest in some other sector or stock.

What will be the best strategy to adopt in the current market scenario? will holding cash help investors?

Investing incrementally, booking profits and having modest expectations is a good strategy. Having some amount of cash is always good because one can take advantage of a new development. The market does throw up interesting opportunities at every level.

Which are the stocks that investors can look to buy if the markets correct by 5-10%?

Metal stocks, which had seen a deep correction a couple of months ago, have now recovered. At those levels, some investment could have been made. Cement would be another case in point. This sector has been under-owned and is witnessing buying. The stocks which are trading at a discount to their peers could attract further buying, especially after the price hike. Even in the large-caps, there will be stocks that will have value at a price. A good idea would be to make a list of such stocks and approximate levels at which you would like to buy them and then track them.