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5 things investors should know as market moves from 9K and beyond

From buying quality cyclical names to choosing high-quality stocks, here are some excerpts from Sandeep Shah of Motilal Oswal Private Wealth Management’s interview to CNBC-TV18.

March 24, 2017 / 01:58 PM IST

The India story is far from over and high net worth investors (HNIs) who were concerned about valuations, partly because of demonetisation and earnings recovery, got caught on the wrong foot, Sandeep J Shah, Associate Director at Motilal Oswal Private Wealth Management said in an interview with CNBC-TV18.

Foreign institutional investors became net sellers in the October-December quarter wherein they sold over Rs 35,000 crore in Indian equity markets, largely on account of US Presidential elections, US Fed rate concerns as well as demonetisation.

Global brokerage firms slashed earnings and Sensex target soon after the government decided to withdraw Rs 500 as well as Rs 1000 currency notes from circulation. The impact of demonetisation was not that bad which looks evident from the rally seen in markets from December lows of 7,900. The December quarter earnings were also better than expected.

We have collated excerpts from Sandeep J Shah interview with CNBC-TV 18 on Friday:

UP election gave confidence to investors

BJP won the UP election with a thumping majority earlier in the month of March which pushed the markets to record highs, garnering a 40 per cent vote share and winning 80 per cent of the total seats in the state (325 out of 403).

“The UP election results gave investors the confidence that this government is here to stay and will follow the reform track. The may continue to look after the poor and make India a better country to do business with,” said Shah.

“Given that, all these factors have worked out in favour for markets, there is incremental exposure which is continuing to come to equities as a long-term asset class. And, a lot of these investors do tend to look at longer term perspective in which India story continues to shine,” he said.

Buy quality cyclical names

If investors are looking for a theme to invest then quality cyclical does come at the top. “Sometime in the second half of 2016, I gave a call to look at quality cyclical where earnings growth was not yet visible but there is hope of recovery,” said Shah.

“There were some reasons to believe that hope would come back. I actually changed the exposure to 30 per cent from 20 per cent earlier for a client portfolio,” he said.

Equity is the only asset class to create wealth

If investors are looking to create wealth than equities are your best bet. “We continue to invest in equities as it is the only asset class which creates wealth and the only other way to create wealth is to build your own business,” said Shah.

“Given the risk profile of investors, they have the flexibility or the option to stagger their inflows at the current level or make a lump sum payment, depending on risk profile,” he said.

Don’t compromise on quality

It is the most important principle of investing if you have to create some serious wealth because it ensures capital preservation.

“Stay focussed on quality and don’t compromise on that because that is the only thing which ensures capital preservation. If you compromise on the quality of business and management then you actually risk losing your capital,” said Shah.

NPA woes on banks; buy top stocks

Banking sector remained in focus on Friday after finance minister hinted at reforms to take care of the non-performing assets on the balance sheet of the banking sector. The valuations are not cheap even though concerns over NPA’s have not been addressed fully.

“PSU Banks bottomed out a couple of months back and incidentally that was the time when there was a slowdown in net additions to NPAs. Since then, some of the larger PSU banks have done well and some of them have even outperformed their private sector peers,” said Shah.

The valuations are not cheap compared to what it was six months back, but I want to watch out the lag effect of demonetisation in the March quarter results. Broadly, the worst is behind us and large quality PSU banks will look attractive on all corrections,” he said.

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