Mumbai, Jul 31, 2024
While arguing that one can find stocks at reasonable valuations in every market, Alekh Yadav, Head of Investment Products, Sanctum Wealth, says private banks, select consumption-oriented companies, and rural economy-focused stocks may be available at reasonable valuations.
However, given the overall extended market valuations, finding stocks priced reasonably is somewhat more challenging at present, he says.
When BJP failed to get an absolute majority, everyone thought of a market correction. And again when capital gains taxed were raised, a correction was expected. Are you surprised by this bull run and how would you explain the resilience to bad news?
The resilience shown by the Indian equity market has been better than initially expected. While the BJP did not secure an absolute majority, it quickly became evident that the BJP was in full control of the coalition, as all major ministries were held by the party. Consequently, the market rebounded quickly after an initial reaction and returned to its previous trend. Many had feared that the government might rationalize capital gains tax in this budget, however, the extent of the rationalization announced in the budget was significant. While the increase in long-term capital gains tax wasn’t as pronounced, a 5% increase in short-term capital gains tax was substantial. However, this is not the first time that capital gains tax on equity has been adjusted. Over the past 20-25 years, we have seen multiple changes in tax rates. Generally, after an initial negative reaction, the market tends to move on and refocus on fundamentals. The very short duration of the negative reaction this time, though, comes as a surprise. Some of this could be attributed to the fact that many managers had built up cash reserves ahead of the election and may now be entering the market, as the event is behind us
How much of a bias towards keeping your powder dry has increased post Budgetin your portfolios?
With all major events behind us, investors are likely to accelerate new investments. However, given the extended valuations, it may be prudent to stagger these investments rather than deploying all at once.
The Budget had little or nothing to offer for rail and defence stocks. Do you find them expensive following the bull run in the last couple of years?
The rally in rail and defence stocks over the past couple of years has been exceptionally strong, and valuations for some of these companies may now be in the expensive range. Investors might want to exercise caution.
Which pockets ofthe market are you hunting for stocks atthis stage? How tough is itto find stocks to buy at reasonable valuations?
Every market offers opportunities for investors to find stocks available at reasonable valuations. The extent of these opportunities may vary depending on the market conditions. Currently, certain sectors such as private banks, select consumption-oriented companies, and rural economy-focused stocks may be available at reasonable valuations. However, given the overall extended market valuations, finding stocks priced reasonably is somewhat more challenging at present.
What should be the best asset allocation strategy around this time when the market has been consistently hitting record peaks and there are hardly any bears left?Is it bestto postpone some ofthe investments?
We believe a balanced approach to asset allocation is crucial. The market rally over the past couple of years may have skewed client portfolios in favor of equities, making it an opportune time to rebalance. Additionally, within equities, midcaps and smallcaps have rallied more significantly; therefore, rebalancing away from them and toward large caps makes sense given the relative valuation gap. We suggest investors maintain an overweight position in large caps compared to their long-term desired allocation between large and midcaps/smallcaps. Any new investments in equity markets should be staggered rather than made all at once.
– Alekh Yadav, Head of Investment Products
For more information, please visit www.sanctumwealth.com
Social Media –LinkedIn |Twitter |Facebook |Youtube