The Rally in the Small Confined Space is still a while away: Nitasha Shankar

The stock market became unstable again due to the spike in global inflation. Nitasha Shankar, senior research services equity researcher (PRS) at Yes Securities, spoke to Mint about the prospects of the Indian market, foreign institutional investors (FII) capital inflows. ) and where she sees value in this market. Edited excerpts:

Equity markets have largely remained buoyant despite rising interest rates and tough inflation. Do you think investors are wrong to ignore the negative signs?

Investors need to focus a little more on the country’s position and the economy in the long term and the long-term trends are positive. We think the market will continue its upward journey. Yes, you will have times of change and volatility, but as long as there is earnings growth, which we think is happening, at least in certain pockets, as long as growth remains strong. strong, then there is absolutely no reason why the market will not continue their upward journey.

Do you have any goals for Sensex or Nifty?

We don’t have any short-term targets, but we expect Sensex to grow at a compound annual growth rate (CAGR) of around 20% over the next three to four years.

There has been a complete shift in assets to the public sector (PSU) and information technology (IT) sectors. What is your view on these two packages from a 3 to 5 year perspective?

You have to look at PSU stock from the perspective that the valuation there is extremely attractive. In fact, they have been fascinating for a very long time. Prior to that, the rationale behind the undervaluation were related concerns, particularly on the PSU banking front, asset quality and whether they will ever come into the credit growth narrative. But now we believe the quality of the content has improved, all the negativity that used to happen on the NPA front has happened and things are improving. There are huge opportunities here from a valuation perspective, which is why we see that interest in PSU stocks is relevant.

On the other hand, technology as a space has become overvalued. The benefit it has seen on Ebitda profits, or even on the Ebit profit front is due to covid-19 savings and people think that will go on forever. Profits now just go back to the classic money level. What will drive growth in this sector is a healthy dealmaking process and healthy contract winning. The trading process is still quite robust, however, the trading wins are not strong enough to justify these types of valuations. So once valuations get back to where they used to be at pre-production, we think the technology will come back with a bang. So maybe next year or the second half of next year, we’ll start to see better growth in tech stocks. Again, it is important to note here that the US is not sinking into a deep recession.

Any other bags that you find valuable?

We see a lot of value in the specialty chemicals sector even today. We also see opportunities in the automotive and automotive auxiliary fronts. The demand for cars has increased. Earlier there was a rumor surrounding the tram. The ascending numbers currently look very attractive on a low base, but that trend will continue and that will help not only the original equipment makers but also the umbrella manufacturers. bowl. The third gap is discretionary consumption such as white goods. We believe the consumer trend has picked up and that will boost demand. So there is a huge pent-up demand, plus a rising consumer trend, and both factors will drive the white goods industry.

FII has recently started returning to India. How much space is left before valuation becomes too expensive for them?

The reason why FIIs are making a comeback right now is that dollar-adjusted returns against them are still out of the question. Right now, we’re seeing that they’re moving into the BFSI space, largely because they understand that space better than other sectors, but this will have minor effects. Eventually, we should see FII flowing into the remaining fields, which fall outside the header indexes. Ultimately, yes, it will lead to higher valuations. It must be said that FII inflows have not reached the peak yet. We are anywhere close to peak flows even today. So there is huge scope.

Small-caps continue to lag behind large- and mid-caps. Could this change in the near future?

I think it’s become a stock pick market now. If you’re looking at mid-cap, as well as small-cap stocks who typically consider or use a bottom-up approach, they can still find a lot of value there. But a rally in the small-cap space is far from over. It will take at least three or six months for that to happen.

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