Sensex surpasses 52,000-mark for the first time; stay invested in these sectors

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Benchmark equity indices BSE Sensex and NSE Nifty scaled a fresh record high on February 15 amid the ongoing rally. A couple of factors including sustained inflows by foreign institutional investors (FII), a growth-oriented union budget and liquidity measures taken by the government and RBI have been aiding market sentiment.

The 30-share index Sensex surpassed 52,000-mark for the first time on February 15 while the 50-share Nifty index was up over 120 points at 15,287 in early trade.

Will the ongoing rally sustain? And what strategy investors should follow to benefit from the ongoing bull run?

In an interview with Money9, Hiren Ved, Director, CEO, and CIO of Alchemy Capital Management, shares his views on the ongoing rally.

Edited excerpts: Q: Do you see more legs of the ongoing bull run? Which factors will drive the market now? Ved: We believe that India is at the cusp of a new growth cycle. There is a clear impetus by the government on manufacturing (via PLI schemes), cost of capital has come down in a meaningful way after a long time and the health of the financial system looks far better than what it has been in the last five years. Also, the government has budgeted to increase its capex spending to 2.6% of GDP in FY22, which is the highest level in 15 years. All this points to a sustainable economic recovery. The first leg of this bull market has been driven by re-rating of valuation multiples. The second leg will be driven by the expansion of earnings. Of course, there can be intermittent periods of correction, especially after a sharp and swift rally, but one must not miss the forest for the trees. Overall, we continue to remain very positive on markets from a five-year horizon.

Q: What is your take on midcap and small-caps? Ved: Midcaps and smallcaps are the most geared to economic recovery. This is the reason why they have underperformed in the last 3-4 years as growth was missing. In fact, the markets had become extremely narrow and most investors were only looking at 10-20 companies which were delivering superior growth. However, our view now is that we are in the midst of a broad-based earnings upgrade cycle driven by low-interest rates, government push on capex, PLI outlays, China+1 FDI incentivising manufacturing, and improving capacity utilisation (which will lead to operating leverage). In such an environment, we expect broader markets to do well.

Q: IPO mart is likely to stay busy in 2021 too. What are the factors retail investors should look into while investing in public offers? Ved: In a bull market, there tends to be a frenzy for IPO’s as the stock can give handsome returns on the day of listing itself. Our advice to investors would be to evaluate each company on its merit rather than just invest in an IPO for short-term listing gains.

Q: Which sectors are looking attractive from an investment perspective? Ved: The theme for 2021 is likely to be everything that is digital and cyclical. We are structurally very positive and bullish on IT stocks. Firstly, IT companies have delivered similar earnings growth to most FMCG companies in the last 10 years and their cash flow generation is also similar to what we see in FMCG companies. Yet, the valuation gap between the two sectors remains very wide, despite the recent run-up in IT stocks. Secondly, we are living in a highly disruptive world and technology is a big beneficiary of this trend.