Is there more pain for investors or a pullback rally in June?

Veteran asset manager Atul Suri, founder and CEO, Marathon Trends-PMS believes that the domestic equity market is in the oversold zone after witnessing a nearly 3 per cent correction in May. However, in an interaction with Business Today, he added that rising inflation amid soaring energy prices is giving him sleepless nights. He also shared his view on the divergent buying and selling patterns of domestic and foreign institutional investors.  Excerpts: 

Business Today (BT): How do you see the trend for domestic equity markets in June?  

Atul Suri: Globally, markets have sold very sharply in May. As a result, they have reached much-oversold proportions. In oversold times, people tend to sell things with no respect for price or valuations. We are seeing the same globally led by technology. The correction is being overdone in the short term and the market is ripe for a pullback rally.    

BT: Can you suggest a few themes which are looking attractive after the recent correction?  

Suri: Technology is one of the sectors which may bounce. However, you will have to be very sharp because technology tends to be highly volatile. Auto is the next sector on the list because of encouraging numbers. Investors should also keep an eye on PSU companies.   

BT: What is your investment strategy amid the ongoing rising interest rate scenario?  

Suri: In a rising interest rate scenario, companies with high valuations do get punished in the short run. However, it is earnings that will matter beyond a point. Things stood cheaper until they do not get discovered. Ultimately, in the medium to long term, the market is going to reward growth. 

Yes, it is going to be more sensitive towards the value that you're paying for that growth relative to what the market was a few months ago. The money is going to be made in companies that are growing in a rising rate environment. However, sensitivity to price or valuation is important.  

BT: Coming to FIIs outflows, overseas investors have offloaded shares worth over Rs 2 lakh crore since October last year. So, which factors are forcing them to sell from the Indian equity market and by when they will become net buyers again?   

Suri: The MSCI Emerging Market Index is among one of the worst-performing indices over the past one year. And one big problem with that is China. Chinese markets are not attracting capitalists. Among emerging markets, China has a very big subset which attracted selling and India is the part of that basket. So, we do get our share of selling or we can say that selling in India is not country-specific. 

It is not that anything is so bad in India or that FIIs are negative in India. When you speak to them, they all think India is one of the best places to be in but it is more a case of allocation moving away from emerging markets and because of that India's share has to be sold out of purely being an important component of that basket.   

When the FIIs outflow will end, it is more of a macro or global call. At present, it is very difficult to predict by when it will happen.   

BT: DIIs have emerged as a saviour with an inflow of nearly Rs 2.50 lakh crore in the past eight months. Why they are highly bullish amid the ongoing challenges?  

Suri: DIIs or domestic investors look at India, the country's macro economies and feel-good factors, among others. For Indian investors, alternatives in financials will be fixed deposits which can give a 5-6 per cent return. The real estate sector has its problem. So, domestic investors do not have many alternatives. That is why you are seeing very large DII flows into equities. 

On the other hand, FIIs have better alternatives. And that is why they are going to those sorts of places. But let me again re-emphasise that it is not that FIIs are bearish or negative on India. It is just an emerging market basket per se, which is seeing its share of selling and that is why India is getting knocked down.   

BT: The metal sector tanked over 17 per cent in May. Do you see any buy-on-dip opportunities in the sector?  

Suri: You have to look at the underlying commodities globally to understand the fall in metal stocks last month. A lot of metal stocks globally have taken a bit of a sharp cut and that gets reflected because the thing with commodity companies is that they are dependent on the underlying commodity prices. Of course, there has also been some sort of government action initiatives, which did not go down too well. And that has resulted in the decline of metals stocks.   
 
BT: So, what is your advice to investors considering the ongoing challenges in the market? What should they do?  

Suri: I started the interview by saying the market is extremely oversold. I think that this is a time when investors who are sitting on the sidelines should start allocating some money. Nobody knows where the bottom of the market is. But generally, oversold markets are good times to get bargains. So, I think this is a good time to deploy part of your liquidity.  

BT: Besides inflation, which are the other big challenges for markets going ahead? 

Suri: The biggest challenge is inflation right now. All countries are getting hit by high energy prices. This has a knockdown multiplier effect on the economy. It is a major input for a lot of companies across industries. And if crude corrects that could be a very big relief for the market. 

There is great potential for the market to bounce back in case inflation cools down. I am in that camp that feels that inflation is not going to be a long-term problem. It will be short to medium term. At present, the thing that gives me sleepless nights is the price of energy.