We advise caution to short-term investors: Vinit Samre

Markets are on an upswing mainly propelled by bullish bets on equities and lower returns by other asset classes. Vinit Samre, senior vice-president and fund manager, DSP BlackRock, spoke to Arpita Saxena about the sectors he is positive on, Sensex year-end earnings growth and more.

Which sectors are you are positive on?

Consumer-oriented stocks, especially in the discretionary space, look attractive. This is a broad theme – within this, there are stocks we like in the textiles, media, auto and auto ancillaries space. Health care, which has been beaten down currently due to US Food and Drug Administration (USFDA) issues, also looks attractive. Investing now, should be a good long-term opportunity. Then there are stocks we like in speciality chemicals, garment exports and in cement.

What do you make out of the current market rise?

The current market rise has been largely led by significant money flow chasing equities in search for better returns. Lower returns in other asset classes like gold, real estate and fixed income market, have further accelerated the flows to equities. Implementation of reforms by government is further fortifying investor confidence. With the likely expansion in the economy and corporate sector, we continue to hold a positive view on equities over the longer term. However, the current rally has been very swift, making near-term valuations look a bit on the expensive side, and we would advise caution to short-term investors.

Any contra calls you can think of that are currently worth investing in?

As mentioned earlier, healthcare space looks good, since the sector will create good value once the USFDA issues get resolved.

How will the small and mid caps move from here on?

The valuations of the small- and mid-cap stocks, are currently much higher than historical averages. Even if one factors in one-year forward earnings, valuations still look stretched. This means, we should expect a healthy correction in the small- and mid-cap names within the next six months. If that doesn’t happen, we must accept that there will be a time for correction to allow earnings to catch up.

Investors should not enter smallcaps and midcaps now, by extrapolating last one to two years’ performance. There is a strong case for investing in this segment with a three-year view, as earnings momentum will accelerate from here on, which will make this segment an attractive investment proposition.

How do you see the year-end earnings for the Sensex?

We expect the Sensex to deliver approximately 15% earnings growth for FY18. We are seeing some improvement build up in the PSU banking space towards the second half as asset quality related issues subside. We expect other sectors to start showing improvement in growth, post implementation of GST by July 2017.

Would index funds be lucrative at this time when the sentiment is rather bullish?

We believe that active funds run with proper investment philosophies, have the potential to create better alpha as compared to index funds.