Sensex tanks over 1,000 points in August: Deepak Jasani of HDFC Securities speaks about where to invest now

After soaring nearly 10 per cent in the ongoing financial year till June 30, the benchmark equity index BSE Sensex has retreated more than 1.5 per cent, or 1,000 points, so far in August due to rise inflation and rising dollar index. Will the ongoing correction continue? Or which sectors could deliver robust return to investors going ahead? In an interaction with Business Today, Deepak Jasani, Head of Retail Research at HDFC Securities, shared his insights on the domestic equity markets. Edited excerpts:

BT: How do you see markets in the medium to long term?

DJ: Most international agencies say India will likely be the fastest growing economy for several years. Political uncertainties will bring an opportunity to buy equities in the next few quarters. Irrespective of the party in power, the India story is alive and kicking, although the degree of growth may differ. Demographics and rule of law remain the biggest attraction, apart from the reforms and pragmatic policies being followed by the government in the last few years. The economy and the stock markets could benefit from these measures. Investors cannot afford not to be invested in India story, though they may change their asset allocation and take profits from time to time.

BT: Can you share key concerns that could lead to a further fall in the markets?

DJ: High inflation and more hawkish US Fed commentary and action than what the market is expecting, geopolitical events or global debt related repercussions could impact global risk appetite. If the feared El Nino weather phenomenon actually happens and India receives deficient monsoon in the second half of the season, it could have a negative impact on foodgrain production/inflation/economic growth. Valuations of Indian markets are not cheap.

BT: Also share key positives that could push the markets to further highs?

DJ: Calendar year 2023 is a pre-election one. It has been observed that benchmark indices have performed relatively well in the pre-election year. After being net sellers for the past two years, FIIs have turned net buyers. FII flows have remained positive (on monthly basis) so far in April-July 2023. Indian companies have reported strong Q4 results and a good number of Indian listed companies have delivered better-than-expected Q1 results. This is a sign that growth and demand is still intact in Indian economy. India’s structural growth outlook will be driven by a digital infrastructure-empowered lending boom, demographics, domestic demand and improving Foreign Direct Investment (FDI). Support could continue from the government, which is keen to stimulate investment activity in newer sectors. Initiatives like the Production-Linked Incentives (PLI) scheme can help boost manufacturing by wresting some supply chains away from China, propel exports, and attract rapidly-growing industries like semiconductors, electric vehicles and renewables that are of strategic geopolitical importance.

Lower inflation, relatively stronger domestic growth, and a pause in the interest rate hiking cycle are also expected to have a positive impact on the emerging currencies including India.

BT: Foreign portfolio investors have poured more than Rs 1.30 lakh crore in equities so far in 2023 against net outflow of Rs 1.21 lakh crore last year. How do you see the trend of FPI flows in the coming 6-8 months?

DJ: FPI flows are essentially a function of global risk appetite and relative placement of India as a destination market compared to other emerging markets. As of now, India is in a sweet spot in the basket of emerging markets and hence has been recipient of good flows from FPIs. Unless China is able to set things right in its economy, we do not think India will see its position seeing a setback.

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BT: Suggest three sectors which may deliver handsome return to investors? 

DJ: PSU as a sector/theme still has some upside left even as the bank, power, engineering and commodity space within it are available at good valuations and are showing operational improvement in their respective businesses apart from having a good revenue visibility. IT index may consolidate some more before embarking on the next upmove.  Healthcare index looks good for some more upmove as companies benefit out of benign regulatory and competition situation and falling raw material costs. Capital Goods index looks good but can be looked at after a small correction.

BT: Which sectors do you think may struggle?

DJ: Auto, Realty and Bank indices could consolidate or correct for some time after a dream run. FMCG index could underperform due to high valuation and subdued growth outlook for the near term.

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