Sunil Singhania, Founder of Abakkus Asset Manager, says mid and smallcaps are likely to do better than largecaps going forward because of the Sebi circular tweaking multicap fund rules.
What is your view on mid and smallcaps after the Sebi revised rules on multicap fund schemes? There are two-three aspects to it. If a stock is good fundamentally, then ultimately investors will buy. What this circular has done is only hastened that move. Three-four years back, Sebi issued a circular which discouraged or made mutual funds stay away from mid and smallcaps. And that was the start of a period where midcaps and smallcaps went crashing. All the mutual funds and other investors became lazy investors. They were only investing in a handful of companies. Multicap means you have to have investment across sectors. There were so many funds which did not have any exposure to mid and small-caps, it was 95% in largecaps. Sebi realised that and it is good because it broadens the market. India is a country of entrepreneurs. You have to encourage smaller entrepreneurs for the country to grow.
Is there further steam left to the market rally? I don’t see a big correction in the market. I think corrections will be short and swift. I don’t see the markets correcting by 20%-25%. We would be optimistic and buyers in the market.
Why are investors like you optimistic when the economy is going through its worst-ever phase? It is a combination of receding fear of Covid, fundamentals improving at the margin and a weakening dollar. The fear of Covid has reduced quite significantly. The number of cases have gone up but when you look around, the scare is lower. Earlier people were not getting hospital beds, that is all pretty okay now. Wherever things have opened up, the demand has been quite good. There was 24% decline in GDP in the first quarter, but the car sales and automobile sales which have come up for August are phenomenal. In fact, even the PMI numbers show that for the first time in so many months, we have gone above 50, which means expansion.
At the margin, the economy is also reviving. Some sectors have revived to the extent of 80-90%. Some sectors have revived less but by and large the economy is reviving. Liquidity is available in plenty. We have seen record flows in August from FIIs. After big deals like Jio platforms, ICICI and Axis, the interest in India is also pretty high. That will continue. The dollar is weakening for the first time after 11-12 years. That would mean that commodities, precious metals and even emerging markets will do well.
What is your take on IT and pharma sectors? They have been investor favourites this year. A. In both the sectors, India has a huge competitive advantage. India is globally competitive in these two sectors and the opportunity continues to be quite big. So we will be optimistic on the two sectors even going forward. We are quite optimistic on the It space, the stocks are still cheap, they are growing pretty decently and the world is spending on IT and digital. So India should benefit.
What is your view on the banking space after RBI’s decision to end the moratorium? Banks and NBFCs with good parentage are able to borrow money and the cost of borrowing is reducing very sharply. Short-term FD rates have fallen to 4-4.5%. The liability side is becoming stronger. The economy is bouncing back and PMI is a good indicator of that. Most of the banks have already provided huge sums for provisions. So that should not be an issue.
What is your outlook for the telecom sector? Telecom is becoming more and more concentrated. Our view is positive because we are using more data. Rates can only increase from here on. We will be at the margin, neutral to positive on the telecom space. This has now become the biggest consumption item in our lives.
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