Market Strategy: ETMarkets Smart Talk: Smart Money Seems to Be Shifting to Energy and Metals: Harendra Kumar, Elara Securities

“We’ve seen strength in the energy and metals basket. The trade structure is strengthening in those names,” says Harendra Kumardoctor, Elara Securities India.Kumar, who has over 20 years of experience in institutional and retail equities, sales, trading, research and distribution, in an interview with ETMarkets said: “We believe that the FII sale will enter a period of ‘reduction’ and is not something to worry too much about. We are quite optimistic about the flow outlook in H2.” Edited excerpts:

After a strong March, we experienced an unstable April. Benchmarks slipped below crucial support levels. What worries the street and what is the way forward?
First, markets are recalibrating growth and profit assumptions for tech stocks that worked in a blue sky scenario.

Second, beyond domestic flows, markets need the tailwinds of foreign flows that have been lacking.

Concerns are well known in terms of inflation, rising global energy prices, etc. The key is to align asset allocation with current momentum.

Energy stocks are expected to remain elevated and they have a long tail in terms of allied sectors such as primary energy producers, power companies and refiners.

We’re seeing a back-to-back double-digit drop in Netflix stocks. Is there a learning lesson for India Inc. here? What are your views?
The important principle in markets is to challenge the market price with the growth that the company can reasonably offer.

More often than not, the ask price exceeds what the company can offer, precipitating a sale.

We see this in our SSIIs. They will see a time or value correction.

Inflation seems to be the biggest risk facing the stock market, not just in India, but across the globe. How can investors build an inflation-proof portfolio?
Inflation is not necessarily bad. This sometimes has a positive effect on many variables for certain companies such as banks (working capital loans), commodity companies, which increases the profits of certain companies.

Basically, profit pools flow from consumers to producers. This should also be your job.

The exodus of FIIs is a bit worrying, especially for the seventh consecutive month (cash segment of Indian equity markets). Are global portfolio managers adjusting their portfolios? Which seems to cause panic.
Although we saw material flows, it was not detrimental. In relative terms, we fared better. The silver lining is that historically whenever we have seen such exits, the following year’s markets have produced positive returns.

Now that we are talking about FIIs – we also have a famous adage “sell in May and walk away”. At first glance, we could see another month of selling at least in the Indian equity market spot market. What are your views?
We are of the opinion that the sale of FII will enter a period of “reduction” and that one should not worry too much about it. We are quite optimistic about the flow outlook in H2.

Where do you find value in this market?
There is significant value in the CPSE basket – be it banks, energy companies or divestment candidates. They see macro tailwinds of high prices, good growth and cheap valuations.

If not HDFC Bank – where does the smart money go?
We have seen the strength of the energy mix and the metals. The trade setup strengthens in these names.

There is a lot of talk about his future plans. What’s your take on the stock?
There is significant value in the business given that the company has made significant investments over the past decade.

The incursions and acquisitions of hydrogen energy are very interesting and add important milestones to this story. The market is waiting for the monetization of these assets.

What is your vision of the IT sector? We have seen some selling pressure from the big names in IT.
The sector is experiencing momentary headwinds in margins and a slowdown in US corporate earnings.

The margin of safety is missing and this gives a lot of impetus to the execution. At this point, we would like to cover this risk by reducing the weight.

In an environment of rising interest rates and rising commodity prices, do you think small and mid caps could struggle in FY23? What should investors’ strategy be?
The supply chain disruption during Covid and the ensuing split-V-shaped recovery in the economy had a salutary impact on the performance of mid and small cap companies.

They are doing well in the context of a broad economic recovery – which will be the case for FY23 and margin issues would be transitory. During this decade of growth, they will outperform large caps.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)

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