Bourses To Remain Under Pressure Till Budget 2020: Umesh Mehta

The bourses are expected to remain under pressure till the Budget next year explains Umesh Mehta, Head of Research, Samco Securities. In a conversation with Himali Patel, he provides an insight into the same. Excerpts from an interview. 

1. What are the factors that are causing volatility on D-street?

When future visibility gets crowded fear grips in as lower earnings spill over to valuation matrix leading to lower prices. This in turn adds to the fear and the cycle continues. Global as well as domestic issues are adding to the volatility on D-Street and until the situation at the grassroot level changes the slowdown will continue for a few more months. Trade war, liquidity squeeze, lack of trust in the NBFC space are some of the major factors clouding the market movement nowadays.

2. How long do you think the market will remain under pressure?

The bourses are expected to remain under pressure till the Budget next year. At least by then the Government will tie all loose ends, confidence will be restored, liquidity concerns will be addressed and comfort level on valuations will also emerge. Revival in the Street should be probably visible by mid next year. 

3. What are major key events in the month of September, that can dictate a new trend?

Modi Government 2.0 has been extremely active post elections and their appearance every Friday like the release of a new movie seems to be a new initiative to revive the economy. This weekly appearance could change the sentiment of the market but nonetheless global factors will be the major driver which will decide the course at least for now.

4. Which are sectors you are betting on and why?

We are advising investors to not get into crowded sectors where the majority of the Street is and instead take a contra bet where valuations are also not extremely expensive. IT, pharmaceuticals, chemicals and PSU banks are some sectors which investors can turn towards. However, not all companies in these sectors are attractive and investors should pick quality companies which have sound fundamentals and strong corporate governance. 

5. Which are the sectors you are avoiding and why?

We are mainly avoiding airlines, private banks and insurance industries because they are extremely overvalued in terms of valuations. Due to Jet woes and capacity additions, supply has exceeded demand in the aviation space and insurance is crowded as investors consider it as a safe haven. Metals such as steel is extremely volatile due to trade war concerns and NBFCs are facing trust and liquidity issues. Cement, refinery on the other hand are cyclical and commoditized and should be avoided for now. Till there are offshoots of a revival visible investors should avoid these sectors.