Jay Thakkar of Marwadi Shares and Finance is betting on these five sectors

Many investors are of the opinion that despite benchmark indices are on a record-breaking spree the profits in their portfolios isn’t growing at that pace. They are in a fix as to whether to make new bets at elevated levels or book profits. To find answers to these questions and help investors in making the most of this crest, Money9 spoke to Jay Thakkar, Vice-President and Head of Equity Research at Marwadi Shares and Finance.

Edited excerpts:

Q: Markets are hitting new lifetime highs every day. So how should investors approach trading in these times? 

Thakkar: The overall trend in the market remains quite positive in the short term however the market breadth has been a concern wherein the broader indices are not participating overall and it has been quite a stock-specific activity. The focus in the short term has shifted to large caps and that’s where the short term action is. So, the short term traders can focus on the large-cap stocks to trade this uptrend in the short term.

Q: There is a huge debate in the markets that inflation is good for earnings. What is your view on it and what is the optimum level of inflation to get an equilibrium between growth and cost-effectiveness?

Thakkar: Yes, inflation is good for the companies as they help in increasing the margins for the long term as once the prices of the products are increased then they rarely come down even when the inflation dips. The optimum level arrives when the supply meets the demand in the rising inflation era and when demand meets the supply in the falling inflation era.

Q: What kind of rejig would you suggest to investors in case of any major correction?

Thakkar: If the correction is any out of wave 3 then the shift should be from high beta stocks to defensives and to large caps from mid-caps and smallcaps.

Q: Benchmark indices are scaling new heights but mid and smallcap indices are reeling under pressure. Does it make sense to switch to large caps?

Thakkar: Yes, it does especially those large caps wherein the growth outlook is still looking quite positive and/or those large caps which have not participated much like those of Banking and Auto names. One has to trade or invest quite cautiously into midcaps and smallcap names from hereon i.e. one has to be quite selective as it’s not going to be an overall rally in it. The midcap index has not witnessed any major retracement or a negative close since 14 months whereas the smallcap index has not witnessed any major retracement or a negative close since 9 months. Nifty Midcap Index has never seen these many consecutive positive months, hence some caution is advised at these levels

Q: Metal is one sector that has given phenomenal returns to investors in the past one year. Despite the rally, the metal sector is trading at an EV/EBITDA of 4.7x, below its 10-year historical average of 6.7x. Do you see the sector trading above its historic averages and which stocks are you adding?

Thakkar: Yes in the long run the sector is likely to trade at much higher valuations. The sector has taken off its 2008 highs recently and this is a super cycle bull market in metals that will last for long. The metals also have an inverse correlation with the dollar index which has turned negative for the long term. For the short term, it may retrace or correct however the long term trend has turned quite positive which is expected to last longer. Domestically the focus of the government to spend on the infrastructure sector and the intention to promote electric cars which is now a global stance will definitely help generate more demand for this sector.

Q: It’s raining IPOs and many more are lined up. Do you see it as the peak of the current bull run?

Thakkar: We had anticipated this in the last calendar year as well that more IPOs are likely to come in this calendar year i.e. 2021 as well. Many were feeling like a top last year as well but we were quite confident of more IPOs to hit the market as historically in the bull market the number of IPOs that hit the market is in the range of 50-60 whereas it’s still 38 only so there is still much scope in remaining 4 months of this calendar year.

Q: Do you think investors should take positions in loss-making new age economy companies?

Thakkar: Markets are always forward-looking, hence those companies which continue to grow their top line and market share despite negative or stable bottom line will still attract investors as once their bottom line improves then it grows exponentially something with what happened with Amazon in the US.

Q: Is the Q1FY22 earnings season shaping up as per your expectations?

Thakkar: There have been good numbers YoY for the obvious reason of lower base and pent up demand however the QoQ numbers as well for many of the companies have shown good growth hence that is getting reflected in the price currently

Q: Lastly, on the eve of Independence Day, how should investors plan for their financial independence and which are your top picks that can help them attain financial freedom?

Thakkar: One should invest wisely and diversify as well in order to be financially independent. One should also understand that investing is a full-time job hence advice from an expert should be considered before investing as this will help to gain more and reduce the risk as well. Banking, IT, Metals, Pharma and Auto are the five sectors which I think will do well in the long run or in this long term bull market. So, one can choose better companies from these sectors in order to generate alpha returns.