Prateek Agarwal, Chief Investment Officer, ASK Investment Manager, tells ET Now that it is best to stay with high quality high growth sectors with lesser volatility over the next one to two years.
Edited excerpts:
Do you think that the worst may be behind us when it comes to the broader market correction?
Yes. The broader market correction in part was caused by the fact that valuations on the midcap side had become significantly higher than long period averages.
With passage of time, there has been a valuation correction and over the past three months, we have seen a serious price correction in this space as well.
I would tend to believe that the worst for the broader market should be over for spaces where quality quotient is high and where growth continues to tick in. I would expect the prices to stabilise and may be move up a bit. The focus area today should be high quality, high growth across market caps and that is the space where one would see lesser volatility than the broader market.
It is time to stay away from cyclicals, especially global commodities where they increasingly appear unsustainable. If you look at a feedback from the market in the last quarter while the metal pack delivers decent numbers, we did not see a price uptick to match that.
That clearly shows that the market itself does not believe that these numbers will sustain and hence it is not giving a multiple to the profits, it is just giving a one-time cash valuation. So, it is better to stay away from commodities.
Stay with high quality high growth sectors with lesser volatility over the next one to two years. The best chance of getting higher growth is in the consumption pack. Monsoons are expected to be good, the government spend especially in the rural areas is strong and in the end, elections redistribute money from people who have money to people who have lesser fat purse and that again helps consumption. So, across categories of consumption, we believe things should look better.
Are you excited about pharma and IT? Would you be buying them right now?
Some of the IT stocks would continue to be cheap for some time. It is a high quality space and the stocks are cheap on valuations and not building in a very high degree of growth. Some of the larger IT companies may be building in just about double digit growth but over the next few years they will probably deliver only that. So, a place where you will preserve your money but probably not make too much returns is how we think about it.
We believe the worst is over for the pharmaceuticals. The stocks have corrected and stabilised. If you look at the market place, a bad news does not make stock prices go down as much as it used to earlier. More importantly, news flow has improved. Sun Pharma Halol plant has got USFDA clearance, Dr Reddys has probably got clearance for a molecule.
For the larger companies, you would not see damage but growth is probably some time away. So, while we are looking at this space, we have not invested much. And that is unlike us. We used to have a high pharma percentage but it is low today.
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