Twitter
Advertisement

It’s a stock-pickers market out here

The recent sharp correction in the Indian stock market has made the art of stock-pickingmore important, says Fidelity India Head of Investment Strategy Arun Mehra.

Latest News
article-main
FacebookTwitterWhatsappLinkedin

HONG KONG: The recent sharp correction in the Indian stock market has removed the “excess froth” that had built up, and now that that’s out, the art of stock-picking will become even more important, says Fidelity India Head of Investment Strategy Arun Mehra.

“The sharp rise in the Sensex from 10,000 to 12,000 earlier this year was not supported by fundamentals,” Mehra said in Hong Kong on Monday.

“In fact, we were expecting it: under normal circumstances, our cash levels are never very high; but leading up to the end of April, our cash position was appreciably high.”

After the correction, which has brought prices of some stocks down to levels that are attractive as long-term investment, “we’re back in an environment where stock-picking is important.”

The focus will be on quality of companies and on earnings growth. Companies that have a long-term franchise, and where businesses are undervalued will drive stock performance, he adds.

Noting that the sterling performance of the Indian market in the past two years was the cumulative effective of the economic reforms and deregulation of the past 10-plus years, Mehra said the Indian economy “is now on the verge of taking off”.

“If I were to cite a parallel, the Indian economy is today at the same stage that the Chinese economy was about 10-15 years ago; it is at an inflexion point.”

GDP growth had been strong over the past five years, and today economic growth is driven in equal measure by consumption growth, spending on infrastructure and structural job creation.

“India is today the established service base for the world, just as China is the established manufacturing base for the world,” Mehra says.

More and more jobs are being created every year in the software, pharmaceutical and knowledge research areas.

Every year, up to 1 million engineers and up to 5 million graduates pass out of Indian colleges. “Wages are moving up, and this is triggering consumption growth,” says Mehra.

And what are the risks associated with Indian markets today? “It’s fair to say that market volatility is here to stay - not just in India, but across the world,” says Mehra.

One of the reasons for this, he reckons, is the emergence of the hedge fund industry, with their hot money flows. “But that’s where opportunities come up for us at Fidelity,” he adds. “We don’t play the momentum game. We’re not looking to get out after making 10% gains; we invest for the long term… For us, India is a strategic market.”

Infrastructure was another area of risk, because investments in that critical sector would have to accelerate for GDP to grow beyond 7%. But the element of ‘political risk’ that spooks many investors is only of a “transitionary” nature, he says.

“Historically, every time a government goes, the markets fall, but such circumstances provide the best buying opportunities in well-performing companies.”

Barring unforeseen circumstances - such as a spike in oil prices - there are no inherent structural risks in the Indian market.

Summing up, Mehra says that the dynamically changing Indian economy would throw up many investment opportunities for long-term investors who pick their stocks with diligence.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement