Smallcap: Enough opportunities in mid and smallcap from a long-term perspective: Prakash Gaurav Goel

In an interview with ETMarkets, Goel who has over a decade of experience said: “We see enough investment opportunities from a long-term perspective as a section of the market in mid and small-cap has been in value zone for a while,” Edited excerpts:

June is turning out to be a volatile month for Indian markets. Which are the immediate threats that one should watch out for?
It is very likely that the equity market will be volatile in the near term due to factors such as global supply chain disruption, rising interest across the globe and in India, and uncertainty around the impact of inflation on demand across sectors to name a few.

The crucial factor from an Indian market context in the meantime will be inflation, crude oil price, and interest rate.

From a medium-to-long-term perspective, what augurs well is the shift of global manufacturing market share to India and the robust recovery seen in the domestic economy on account of reform measures undertaken in the past 5-6 years.

What is your view on small & midcap space which you track very closely. Do you think that the broader market is in a value zone?
While mid and small-cap investing has always been about stock picking, we see enough investment opportunities from a long-term perspective as a section of the market in mid and small-cap has been in the value zone for a while.

Post the recent correction, several opportunities have emerged in a few other pockets as well.

There are talks about slowdown in the global economy and in India too. Should investors be worried?
It would be unfair to assume a marginal drop in GDP growth estimate as a precursor to a recession. In recent times, global supply chain issues have led to very high inflation that impacted consumer demand globally.

Experts in the US are fearing a short period of recession. However, when it comes to the Indian economy, we see the limited impact of these developments as crude oil prices are likely to correct on account of the slowdown in the developed world. This will help in controlling inflation back home.

How do you see consumption as a theme in the medium to long term?
Consumer staples have been trading at a rich valuation given their earnings predictability. But with rising inflation, there will be an impact on margins both in terms of raw material cost and premiums.

So, this is one pocket we have been cautious about. Within consumption, we like retail and discretionary space as they tend to have higher growth longevity.

Sectors that could relatively be safe bets in rising interest rate scenario as well as rise in inflation?
There are specific sectors that benefit from a reasonable uptick in inflation. For example, asset owners like hotels, and malls gain as the replacement cost goes up.

General insurance is another beneficiary as the ticket size increases because of inflation.

Banking too stands to gain in the initial phase of an interest rate rise. At the same time, a very sharp rise in interest rate can hurt growth.

What is your take on FII outflows?
FII outflows is a result of multiple factors such as sharp relative outperformance of India compared to other markets and rise in interest rate globally leading to money being shifting out of equities.

Similar is the case even in several other emerging markets. Going forward, what could likely reverse the trend is interest rate peaking out globally and softening of global central bankers’ rate stance.

What are you factoring in for other forthcoming quarters in terms of earnings?
The earnings outlook will depend largely on the impact of rising interest rate on demand coupled with the impact of spike in input prices on profitability.

The near-term earnings volatility looks inevitable in the context of high commodity prices and supply chain issues.

So, we prefer to focus on business strength and look over earnings volatility which could play out over the next couple of quarters.

We believe a weak market provides attractive investment opportunities for long-term investing as prices tend to be reasonable in such market conditions.

How should one position their portfolio in terms of equity and debt part? Is it time to go slightly underweight on equities or neutral?
To begin with, an investor needs to have an asset allocation plan in place. Given the correction is seen over the past few months and valuations becoming attractive as compared to the start of the year, investors can consider increasing their allocation to equities if the asset allocation plan permits.

Our in-house equity valuation index currently is indicating higher allocation to equities which was not the case six months back.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)