We are very bullish on the broad markets over the next 24 to 36 months
It is worth recalling that during the depths of the CoronaVirus crash, when the Sensex and the Nifty had plunged to unimaginable levels and tripped the lower circuits, Hiren Ved was one of the few brave voices who had sent out the Buy call.
“This crisis is once-in-a-lifetime opportunity for investors … If you invest in good quality companies, you will definitely make good returns,” he had advised in a soothing tone.
This crisis is once-in-a-lifetime opportunity for investors, says Hiren Ved.
Read more: https://t.co/3zR9UANRna pic.twitter.com/LhNDFnK2l6
— BloombergQuint (@BloombergQuint) March 23, 2020
No doubt, the advice was brilliant and has filled our pockets with solid gold.
However, Hiren now cautioned that we should not get carried away.
“Retail investors have done exceedingly well having bought during the lows of the markets last year. Many of them are sitting on pretty good gains but if they think that they can make 30-40-50-80-100% returns every few months, that is not likely to last. It never lasts,” he said in a somber tone.
“There is a phase in the market where momentum is very strong and you can invest on your own and make money, but if money making was so easy then nobody would actually do anything else. So, people have to be careful and not get carried away by the momentum. They should stick to good quality companies because usually when the broad markets tend to do well. the good, the bad and the ugly all move up. The rising tide pulls all boats up and when the tide goes down, then things become very difficult. So I think we should have reasonable expectations of returns,” he warned.
“Having said that, we continue to be very bullish on the broad markets over the next 24 to 36 months,” he confirmed.
Don’t worry. There will not be a significant correction
Hiren Ved pointed out that the Mutual Funds have been aggressively selling stocks through out the rally and are sitting on mountains of cash.
It is obvious that they are itching to rush back to buy stocks on the first signs of a correction.
“In the near term, the markets could correct but it will be very shallow and swift because a large amount of domestic liquidity is sitting on the sidelines. There has been consistent selling through this rally ever since the Nifty crossed 10,500-11,000. The mutual funds have sold at least $10 billion worth of stock over the last five months and that liquidity is either aligned with them or with the end investors. On the first sign of a correction, I expect this money to start flowing back again,” he said.
He also opined that there will be earnings growth and upgrades.
“Earnings are going to surprise people on the upside just like they did in Q2. I would be surprised if you see earnings upgrade once the Q3 season is over. There are more legs than just liquidity to sustain this market,” he stated.
Mid-cap stocks will thrive while large-caps may cruise
Hiren pointed out that he has done a study of the last five significant corrections in the Nifty which were greater than 15% since 2000.
After these five corrections, over the next 15 months on an average, the Nifty was up between 9% and 10%. However, the midcap index was on an average up 30%-35% and the small cap index was up 45-50%.
“It is quite possible that the headline indices — Nifty and the Sensex — may not give much greater return incrementally because all the return has been upfronted. But over the next 12 to 24 months, there will be opportunity in the broader markets. Post the very strong recovery in the headline index, the action is likely to shift to the broader markets and that is where incremental returns are going to be,” he said.
Tech stocks are in demand. 3 Mid-cap stocks to buy
Hiren revealed that for the longest time he has been very bullish on Tata Elxsi and L&T Technology Services (LTTS).
“Both these ERD companies will do very well,” he said.
“Tata Elxsi has shown industry leading topline growth and industry leading margins. LTTS results are also expected to be very strong,” he added.
He also stated that within the midcap IT pack, the stocks that he really likes are Larsen & Toubro Infotech (LTI), LTTS and Tata Elxsi and that is where he has placed his bets.
“There is still significant upside left in these stocks over the next 12-24 months even after the recent run up,” he stated with confidence.
.@hirenved of Alchemy Capital sees techs as a long-term structural growth story. So where is he placing his bets? Find out ? pic.twitter.com/IN4K9mfeTf
— ET NOW (@ETNOWlive) January 15, 2021
PSU stocks can get re-rated
Hiren opined that the ongoing privatisation and divestment of PSU stocks can be a big game changer from a macro perspective.
Some of the stocks which are in the divestment/privatisation pipeline include BPCL, Container Corporation, Shipping Corporation and Air India, he pointed out.
“Even if two of these four companies are divested, then the entire PSU pack can get rerated …. we need to see real action on the ground and once that happens, there will be significant opportunity to make money in PSUs,” he observed.
Pharma, Auto, Realty & Finance stocks will also do well
Pharma stocks have to obviously form a core part of every sensible investor’s portfolio given that they are debt-free, have high RoEs and free cash flows.
“In Pharma, there could be upsides that are not factored in because it is very difficult for analysts to take all the potential upsides that could be there in the product pipeline and therefore potential surprises could come in,” Hiren opined.
He also stated that there can be a significant upside to the realty sector because they are just starting a new cycle now.
“We are seeing a nascent recovery in the real estate sector thanks to low interest rates and better liquidity, which can also support growth in the near term as we recover from the pandemic,” he said.
“One can make money selectively in capital goods, real estate and in housing finance companies,” he added.
As regards Financials, he explained that they will have to play some catchup because they are still under-performing the Nifty.
He, however, warned that even after the catchup is done, financials may not lead this market and will be at best market performers.
“Consumer discretionary and cyclical sectors and stocks from those sectors will do phenomenally well,” he emphasized.
LTI is a great componder though looking overvalued currently will surprise market with upside and guidance for next year