investment strategy: ETMarkets Smart Talk: Time to follow Warren Buffett’s advise to ‘buy the fear’ in market: Sunil Damania

“Several stories are projecting a scenario of gloom and doom, ranging from recession in the US, commodity price shocks of crude oil moving up, the global rise of interest rates, moving away from quantitative easing to quantitative tightening, etc.,” says Sunil DamaniaCIO, MarketsMojo

In an interview with ETMarkets, Damania has over 30 years of rich experience tracking the Indian and global stock markets said: “We would evaluate good quality mid and small-cap names trading at reasonable valuations from a long-term perspective of more 3-5 years,” Edited excerpts:

The Indian market bounced back after touching a fresh 52-week low earlier in June that was largely in line with US markets post US Fed rate decision. Time to turn cautious or buy the fear?
Post-March 2020, Indian markets were on a roll. Given the circumstances, that is, when markets move up sharply, investors make profit booking.

That is precisely playing out as we speak — the Indian markets are giving up some of the gains made post-March 2020. Right now, the market is the same level it was in June 2021.

Now the question arises, should you turn cautious or buy the fear?

Back to recommendation stories

A famous Warren Buffett quote comes to mind – “Be fearful when others are greedy and be greedy when others are fearful.” Several stories are projecting a scenario of gloom and doom, ranging from recession in the US, commodity price shocks of crude oil moving up, the global rise of interest rates, moving away from quantitative easing to quantitative tightening etc.

All these factors could cause the market to go down further. We believe the market typically forms the bottom when a good deal of negative news floats around.

Thus, if you have a minimum one-year investment horizon for the equity asset class, this is the time to buy the fear and invest more in equity markets.

We will be completing 6-months of 2022, and it has been a volatile journey for investors. What is your outlook for markets for the rest of the year? Will we hit 14K first and then rebound?
When we entered 2022, we believed that the market would give gains only in the second half. This was proven right at the time. We also predicted that in January 2022, the market would move up in the second half of 2022.

Therefore, we believe that the market will begin to give positive returns in the second half of 2022. Will it hit 14000 and then rebound? It is challenging to predict whether the index can reach the 14000 level.

When the year started, we had anticipated that the Nifty could touch 15000 – 15500. Once again, that is precisely what took place.

So, for some reason, if the market does go below 15000, we expect a very sharp rebound in the market. Similarly, if the index has to go to the 14000 level, we expect it will not remain there but rise above 15000 levels.

Sectorally, realty and IT sectors fell by more than 20% so far in 2022 – what is weighing on these sectors, and will the weakness continue? Any top stocks which are worth buying?
We believe realty will underperform as the new launches that helped increase the supply and pent-up demand have now been exhausted.

In the past, the government had provided several SOPs/incentives to purchase real estate by reducing stamp duty, etc., and the interest rate was also relatively benign.

But now the situation has changed. For one, there are more launches than the demand can keep up. Secondly, several state governments have discontinued the concessional stamp duty.

And thirdly, interest rates are rising. Unfortunately, we are still not done with the rate hike cycle. In other words, there will be more rate hike cycles, which would hurt realty.

That’s because most people purchase houses on EMIs. Hence, with a rise in interest rates, the EMIs would also increase, affecting people’s ability to pay higher amounts. Therefore, we opine that realty will underperform from its present levels.

As far as IT is concerned, we believe the headwinds we witnessed in the IT sector will begin to fizzle out post-September-2022. Hence, given a choice between IT and realty, we believe the IT sector should do well post-September 2022.

Power sector outperforms so far in 2022 – what led to the price action?
One of the reasons why the power sector did exceptionally well was because of coal shortages and a hike in the price of crude and gas. At the same time, the power demand surged substantially across the world.

As we speak, several thermal power plants that had closed have resumed operations due to the clear-cut shortage of alternate fuel to generate power.

And due to that, power companies did remarkably well. Is it a long-term structural story? The answer is no. But in the near term, the power sector may outperform due to a mismatch between the demand and supply.

War, inflations, yields, rate hikes, and crude oil still remain relevant evil for equity markets for the rest of 2022 – how should investors prepare their portfolio?
When you invest in the equity markets, there will always be uncertainty about certain events. We have not seen a single day, week or month in the investment journey without uncertainties.

The market will always be wary of specific factors. Today it could be war, inflation, yields etc.; at another time, it could be another disparate factor.

But it is interesting to note that the market always discounts positive and negative news.

Indian markets have seen the likes of the Harshad Mehta scam, the Southeast Asian crisis, the Y2K boom and bust, the taper tantrum, the global financial crisis, China slowing down, etc., And every market dip gave a beautiful opportunity for investors to increase their equity allocation and exceptional wealth.

We believe that the present war situation, inflation, higher yields, rate hikes, crude oil surges etc., offers attractive investment opportunities for investors to make money.

We are saying so because all these factors we are experiencing today may not be relevant 12 months later. For example, we do not expect the Ukraine and Russia wars to continue beyond 3-6 months.

Likewise, we don’t expect crude oil prices to remain at an elevated $100 per barrel beyond October 2022. In other words, if these events could fizzle out in the next couple of months, the market could start reacting positively.

However, while these events appear challenging, you need to view equity investments from a long-term perspective as an investor.

Hence, it may not help to give too much importance to such factors. On the other hand, most negative market news are in the price, and hence, we don’t see a further market downside due to news.

If someone plans to invest Rs 10 lakh in H2 2022 – what should be the ideal investment strategy?
We suggest a portfolio approach with a proper allocation based on your risk appetite for large-cap, mid-cap, and small-cap market mix.

At the same time, you may also want sector exposure, not beyond 30% in one sector. This can help diversify your portfolio without taking too much risk when investing Rs. 10 lacs.

Hence, we suggest selecting 10-12 stocks from different sectors and market caps to create a portfolio for yourself.

Do you feel that FIIs outflows could stabilize or reverse in H22022? There are talks that retail investors might not be able to keep on putting money if the economy goes into a slowdown/job loss?
FIIs have been net sellers since October 2021 in the Indian equity market. This has been the most prolonged period of FII-selling wherein they have sold nearly Rs 2 lac crores in the Indian equity markets.

However, we firmly believe that FII flows will turn positive. They will return very strongly to the Indian equity market purely due to attractive Indian market valuations, resilient Indian growth and the fact that India is emerging as one of the fastest-growing economies in the world. Hence, we believe we are at the last phase of FII selling.

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

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