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sharma: ETMarkets Smart Talk- Nifty@20K – Rising crude prices, dollar index and high valuations could spoil bull’s party: Divam Sharma



“We believe that other factors including rising crude prices, rising dollar index and high valuations can turn out to be a spoilsport for the markets over the coming months,” says Divam Sharma, smallcase manager and Founder at Green Portfolio.

In an interview with ETMarkets, Sharma said: “We are increasingly seeing lesser companies which are coming at reasonable valuations and hence we’re keeping more cash than usual at the moment” Edited excerpts:

We saw a steady rise in markets last week with Nifty50 climbing 20,000 levels. Do you think the upcoming US Fed meet could play a spoilsport?

There is a 97% probability of no change in interest rates. Currently, it seems like FII’s are in “buy the rumor and sell the news” mode.

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We believe that other factors including rising crude prices, rising dollar index, and high valuations can turn out to be a spoilsport for the markets over the coming months.

Mid and smallcap indices hit a fresh record high last week – how should one play the theme now? What is pushing the rally?
The market is currently on a high, and everyone can see this. An increase in allocation from DII’s, FII’s, and retail investors has taken the valuations up. This rapid climb suggests that a bit of a healthy correction might be good for balance.

We are increasingly seeing fewer companies that are coming at reasonable valuations and hence we’re keeping more cash than usual at the moment.

We see opportunities in some pockets of chemicals, pharma, infra, and electronics sectors. We are looking at individual stocks and booking profits where we see heated-up valuations.While their success is impressive, it’s important to stay attentive and not get overly caught up in the excitement.

Delhi recently concluded the G20 meeting – what is your view and are there any takeaways for India Inc. from the meeting that you have come across?
India’s position is getting stronger, as visible from its G20 presidency, which is great news for long-term investments coming through domestic and foreign investors.

India is making a big effort to use more biofuels, showing its commitment to reach a goal of blending 20% ethanol. This push toward biofuels also opens new opportunities for companies in the ethanol space.

We are also bullish on infrastructure and logistics including railways and shipping. Overall, it’s a moment of pride and we are happy to be a part of this golden era for our country.

Lately paper as well as shipping stocks have done better – what is pushing the rally in this space?
Paper companies have seen a strong performance linked to the direct correlation between paper demand and economic growth. As the economy has shown signs of improvement, the demand for paper products, ranging from packaging materials to office supplies, has risen.

Also, the increased demand for paper has been further supported by the lower import costs of wastepaper from the European Union, making it more economically viable for paper manufacturers.

Shipping stocks have seen a resurgence due to the rebound in freight costs from multi-period lows. This increase in shipping rates has significantly boosted the profitability of shipping companies, driving up their stock prices.

We see such sectors continue to ride the wave of economic growth and improved market conditions over the coming years.

PSE stocks remained in focus last week – what is driving the rally in public sector enterprises?
We have seen a rally in the value of stocks over the last few quarters and many of these PSEs were value plays.

We have seen an increased focus from the government to create and unlock value for such PSEs through various efforts, something which we have not seen over the last few decades.

These companies had immense resources and potential while these companies were always considered only as cash generating through dividends and divestments by the government.

The investors are liking this government’s renewed value creation focus towards these companies.

How are FIIs looking at India? They have remained net sellers in the cash segment of Indian equity markets so far in September. They pulled out more than Rs 20,000 cr in August.
We are closely tracking these figures as they are an important metric to guide the market direction. The long term is definitely bullish for the FII’s while in short term many global macro factors like rising crude and high valuations are possibly triggering a withdrawal.

We have seen a good inflow since March. We are also positive on a higher weight allocation that India will see in the EM space in the coming years.

US Dollar index at 6-month higher – what is fuelling the rise and what is a view on the rupee and its impact on equity markets?
The recent rise in the US Dollar index can be attributed to the weakness of the Japanese Yen and the devaluation of the Chinese Yuan. Expectations of delay in US interest rate cuts and higher short-term yields have also strengthened the case of a rise in the Dollar Index.

This stronger dollar implies a weaker Indian Rupee in the short term. However, we anticipate relative stability in the rupee in the near term and potential long-term strength.

While a rise in the dollar index is negative for markets, the impact on equity markets will depend on various factors, including the pace of exchange rate fluctuations and global economic conditions, and investors should closely monitor these developments.

Which sectors are looking attractive for the long term?
Commodities have garnered attention as we see some rise in prices as China is pushing its economy. Many API’s, chemicals, and commodities have seen a rise in prices over the last few days.

We are selectively seeing opportunities in textile, infrastructure, cement, chemicals, pharma, capital goods and electronics.

What is your take on the one-hour trade settlement and fractional ownership in India? How will that benefit retail investors?
Implementing a 1-hour trade settlement is a historic move. The transaction time for the market would significantly reduce and would improve liquidity with the investor receiving the full amount on the share sale instantly.

It would also reduce the market risk, improve efficiency, and reduce switching costs. Kudos to the regulator.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)



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