Union Budget, elections may impact market momentum: HDFC Securities' Deepak Jasani

Are the markets done with sudden sell-offs for now? Concerns about the Omicron variant of COVID-19 and tightening of monetary policy around the globe have been discounted in the current prices. However, any further surprises on the lifting of interest rates from record lows could trigger another round of sell-off globally. That is the message from Deepak Jasani, Head of Retail Research at HDFC Securities.

Adverse developments on the new COVID variant front could also impact investor sentiments globally, he said in an interview with CNBCTV18.com. Besides, two local events are on his watch list that may impact the direction and momentum in the market: the Union Budget and state elections.

Jasani believes it is difficult to say confidently whether the worst of COVID is behind for Indian investors. "With every outbreak of (COVID) variants, the negative impact gets lower and lower," the market veteran said. He is of the view that any delay in global and domestic economic recoveries may lead to some fatigue in the market.

Remarks from Jasani come at a time when Indian equity benchmarks have receded about seven percent from their all-time peaks, clocked in October. He feels valuations have come down from the peaks in October, but going forward, "a lot will depend on corporate earnings/Nifty EPS growth".

India, being one of the preferred emerging markets traditionally, could still continue to enjoy premium valuations "in case we see good upward momentum in earnings and Nifty EPS", he said.

"One will have to maintain asset allocation for equities at the planned levels and in case it has come down, a gradual rise can be undertaken," suggests Jasani.

Till October 2021, the Sensex and the Nifty raced to scale a series of record highs in a near one-sided rally that lasted some 18 months. Since then, concerns around Omicron globally and sustained selling of Indian shares by foreign investors have led to some correction.

As of Tuesday, the Nifty50 is 1,371.2 points below its all-time high of 18,604.5, touched on October 19.

Here's how the 50-scrip index has fared since January 2020:

Will it be long before benchmarks revisit peaks?

Jesani sees a "very small chance" of the headline indices reaching new heights in the next quarter. "We need more confirmation of COVID issues getting diluted, global growth picking pace, inflation across the globe coming under control and rate hikes being undertaken at a leisurely pace before we can expect such a thing to happen," he said.

A number of states in the country have brought in fresh restrictions to curb the spread of the pandemic amid increasing cases.

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It is the right time to bank on defensive stocks, from spaces such as FMCG, pharmaceutical and IT, believes Jasani. They are good bets now till more clarity emerges on global growth and inflation, though they may not be cheap, he elaborated.

Defensive stocks are considered the safest among equities, especially in unfavourable market conditions.

Jasani suggests bottom-up investing in midcap and smallcap segments now. Bottom-up investing focuses on individual stocks rather than overall market conditions. It is contrary to top-bottom investing, which emphasises the big picture such as market conditions and economic factors.

On his 'avoid' list now are "over-owned sectors like financial, auto and metal, which may keep underperforming for some time".

Jasani is not a big fan of new-age companies at the moment. He finds new-age company valuations to be on the higher-to-excessive side.

Asked about his take on IPOs of new-age businesses, he said,  "The pricing of most new-age IPOs was not in sync with company prospects. Institutional investors fell over one another in the anchor round to subscribe to the issue, while the HNI and retail categories were a little more circumspect going by the oversubscription levels."

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He believes a large part of the potential upside over the next 3-5 years is already in the IPO prices.

"The listing/trading at a discount could result in future valuations by new-age companies being more modest. Though retail memory is short, IPOs expected in the next few months will attempt to leave something on the table for investors," Jasani added.

His advice to those eyeing new-age IPO opportunities now: "Investing in high priced IPOs pays off only in times of bubbly market conditions."