It’s too late for investors to take money off the table as stock markets could bottom out in the next 4 weeks, said investment adviser Sandip Sabharwal, adding that it didn’t make sense to exit now. In an interview with Surbhi Jain of FinancialExpress.com, Sabharwal also said that investors should wait before making new investments as things might get another 10-15% cheaper. From current levels, there could be more downside on the charts as analysts haven’t fully factored in the impact of high inflation, high interest rates and a possible slowdown growth in their estimates. Sandip Sabharwal expects the risk reward to turn favorable around the 15000 level of NSE Nifty 50. Here are the edited excerpts from the interview.
How long do you think the sale of FII will continue?
Foreign investors selling must be seen in the context of the huge flow of money into risky assets, especially stocks and cryptocurrencies last year, which was higher than the total for the previous 20 years. In this context, investors are massively overweighting equities in their asset allocation. Now that interest rates are rising, valuations must come down, and at some point fixed income or bonds become attractive to investors who have turned to equities solely because of TINA. (There is no alternative). Current global equity outflows are only 20% of what happened last year itself. As such, till valuations remain high, outflows could continue and peak over the next few weeks. When the risk reward turns favorable over the next few weeks, we should see the flow of funds reverse.
2. Slick valuation slips below the five-year average, what do you think?
Valuations have two parts: price and earnings. The drop below the 5-year averages implies that there will be a particular level of earnings growth that may not materialize as interest rates rise and earnings growth estimates are reduced. This must therefore be evaluated dynamically. In any case, in bullish moves there is an overshoot and in bearish moves there is always an undershoot. Investors should wait for the undervaluation before buying aggressively.
3. In the current market scenario, should investors stay invested or take money off the table?
For investors who have remained extremely overweight equities, it is now too late to exit as markets could bottom in the next 4 weeks and therefore it does not make sense to exit now. For new investments, they should wait because things could get 10-15% cheaper.
4. Where do you see BSE Sensex, NSE Nifty 50 and Nifty Bank in the short to medium term?
At around 15,000 levels of the NSE Nifty 50, the risk reward will start to turn favorable and good levels to allocate higher will be near 14,500 levels. Thereafter, we will see the markets slowly recover as this sets the basis for much higher markets over the next 3-5 years.
5. Has the selling pressure eased or is there more bearishness in the markets?
There should be more downsides as analysts have not fully factored the impact of high inflation, high interest rates and possible slowing growth into their estimates. The key is that given the way inflation is global, interest rates will not only rise, but stay high for an extended period and this could become a challenge for growth. Inflation is the key variable to watch.
6. What are the key sectors targeted?
Commodity sectors should be avoided now and commodity users, i.e. autos, capital goods, etc., will do well at the bottom of the markets. The financial sector will also do well and some consumer stocks could also become attractive.