When sentiment improves it will be difficult to get quality stocks at such valuations: Madhu Kela

Since time immemorial, we have tutored by eminent Gurus like Warren Buffett, Peter Lynch and Rakesh Jhunjhunwala to buy stocks when there is blood on the streets. Yet, every time, we ignore the sagely advice and later rue not having bought the stocks at bargain basement prices.

Madhu Kela reiterated the same advice:

"A lot of these factors, whether it is war or oil price, as suggested by history, are not going to be here permanently. Once these worries go away from the market, it is very-very difficult to get these quality companies at such valuations," he advised in an interview to ET.

He also expressed the view that we are still in a very strong bull market and that we are presently merely witnessing a correction in a bull market. He also pointed out that the corporate balance sheets are looking very strong. Most companies have wiped out their debt, a lot of the companies have reported record profits in 2022.

IT Stocks vs Bank Stocks

IT stocks and Bank stocks are both wealth creators and have been multibaggers over the past several decades. However, both are presently in the doldrums.

So far in the calendar year, Nifty Bank is down about 4 per cent while Nifty IT has lost 7 per cent of its value. Index heavyweights is down 10 per cent year-to-date (YTD), 11 per cent and 21 per cent.

Madhu Kela was asked the difficult question as to whether one should choose IT stocks or bank stocks for investment.

He chose the Banking sector and gave the following rationale: "The demand for IT will remain very strong but there are recession worries in developed markets, specifically Europe and America, that will hurt sentiments in the IT sector. Keeping that in mind, my bet will be bigger on banks as things stand today," he opined.

He explained that the reason why Bank stocks are presently not performing is because there is an oversupply of money and worries about geopolitical situation and inflation. That is what is keeping bank stocks in check, he said.

"I would definitely be a buyer of banks and financial services companies over the next three to six months and this is one sector in my view that should do reasonably well over a three-year timeframe," he added in a confident tone.

However, it may be noted that IT stocks are also formidable investment opportunities. In fact, Edelweiss has issued a recent report stating that the pessimism relating to IT stocks is overdone and the time is ripe to buy them. Edelweiss has recommended several large-cap and mid-cap IT stocks. (See Pessimism In IT Stocks is Overdone. Top Large-Cap & Mid-Cap stocks to buy now).

Kela made it clear that he is not much perturbed about the incessant selling by the FIIs because that would also change soon. "As and when this FII flow starts to turn positive, the market will become very-very strong," he said in a soothing manner.