Time to be back in market; here’s where you can put your money now: Devina Mehra

“Now we are in a phase where the markets have come down a lot and the danger is in missing out on a big up move. Our analysis showed that in 40 years, we missed out on 10 big up moves. We give up two-thirds of the returns if we miss out on 30 up move days and 90% of returns if 30 days in 40 years,” says Devina Mehra, Chairperson & MD, First Global.

You have been harping on the fact that the rupee depreciation remains a clear and present danger and that sure is playing out.
Yes it is. I have been saying since Diwali last year that this is the risk for 2022; I mean risk as well as opportunity for some but that was quite clear even before the commodity big rally or the Russia-Ukraine conflict. Of course, of late, RBI has made some efforts and so we have seen a slight moderation but that overall trend will continue for some more time.

What is your advice for equity investors? Crude oil price fall has been a clear advantage for the Indian equity markets but we did not see that much euphoria play out although now we are seeing a solid catch up. Do we also need to see other moving parts change for the overall market sentiment to turn?
As you mentioned, commodity prices. This has been quite an interesting time because they say that a week is a long time in politics but this time, a fortnight has been a long time in economics. Two or three weeks ago, if you would have asked everybody in business what would you like to see, that would have been the moderation of inflation and that has happened at least from the commodity end, which is where this whole thing started in the first place.

From the beginning of the year, all industrial and precious metals are negative or near negative. Agri commodities which were fuelling a lot of inflation around the world including in India, have seen a great deal of moderation. Cotton is down 35-40% from the peak, wheat is down 40% though that does not directly impact India.

Also, palm oil has cracked big time and that helps prices of edible oils and a lot of other agri commodities, barring soy and corn, which still remained high. But they are also coming down quite rapidly. So the only part of the commodity basket which still remained up was oil and gas but that has also come off its high.

Our guess is that crude might as well remain range-bound rather than coming down or going up very sharply, but it does not look as if it will come down a lot more. But whatever has come down, that helps India besides the fact that India may not always be buying at that quoted crude level. Food prices coming down will help, palm oil and certain other things coming down will help FMCG companies which use that as an input.

So overall commodity prices going down is good news for India, but these are all excuses that are used as triggers. It also depends on where the market otherwise wants to go and as I have been saying, India will be an outperformer this year and that also has been playing out. We still think India is one of the better markets to be in and the risk in the market right now probably is in not being in the market – whether in India or globally, especially the US.

Now we are in a phase where the markets have come down a lot and the danger is in missing out on a big up move. Our analysis showed that in 40 years, we missed out on 10 big up moves. We give up two-thirds of the returns if we miss out on 30 up move days and 90% of returns if 30 days in 40 years. So that 15% compounding that you are looking for from equity just disappears if you miss out a few good days. Those few good days normally come after a big correction and that is something in terms of broad things to keep in mind. Now is the time to be back in the markets.

The agri commodity cool off is tactically good news for consumer stocks because FMCG stocks, even non-movers like ITC, have been doing well for the last six months. Would you say there is a bit of a catch here?
No, that is definitely going to help FMCG in two ways. One, of course, is that as the prices for some of the other components come down, there is more room for FMCG purchases. What was happening in the previous few months was that people were postponing not just consumer durable purchases but even things like shampoos and all that. That was showing up in the declining volumes for FMCG.

So FMCG, after a very long period of underperformance, which has lasted over a year-and-a-half, now is looking better. We do have some FMCG names now in our portfolio including ITC. In fact, that was the first one to come back into our portfolios some weeks and months back and that has played out well for us.

Besides FMCG where else do you see leadership emerge in this kind of an inflationary environment in India?
The sector that we are most overweight on is capital goods, industrial machinery. As we still have the rupee depreciation theme, we are partially overweight on parts of textiles, parts of chemicals and we still remain somewhat overweight on IT services.

That has been something I have spoken about several times. Those would be the broad themes barring some telecom and a few other odd things, but in terms of sectors and the other big change other than FMCG coming back has been in the auto, especially the four-wheeler space. We have increased our weight there.

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