Mihir Vora, Chief Investment Officer (CIO) of TRUST Mutual Fund, shared insights with Outlook Money on various facets of the investment landscape, addressing concerns about mid-cap and small-cap stocks, market corrections, global factors, and investment philosophy
Here are the excerpts from the interview.
Do you foresee a significant correction in mid-cap and small-cap stock prices given that many market experts have said their recent surge in the past year was without any strong fundamentals?
There are two different aspects to this question – fundamentals and valuation. When it comes to fundamentals, mid-cap and small-cap stocks represent segments and sub-sectors with high growth potential, which are often not covered by large-cap stocks. These sectors are expected to grow at a much faster rate in the coming years. Several sectors covered under the production linked incentive (PLI) scheme, where the government focuses on indigenous manufacturing, such as mobile phone production, electronic consumer goods, electronics and defence, are covered by the mid-cap and small-cap space.
Additionally, the competitive edge of Indian chemical and specialty chemical companies and firms involved in railway capital expenditure, transmission, metering, and transformers are all covered by small-cap and mid-cap stocks. In terms of fundamentals, there are plenty of stocks to choose from. I will not agree with the statement that stocks have gone up without fundamentals.
We can debate on valuation. Whenever there is excitement in a particular sector, there will be overshoot or undershoot on the bullish side and the bearish side. There has been some valuation drop which has been built up in the last 6-12 months, which is now getting corrected. I would say it is a reality check. It is creating opportunities to buy these stocks at a more reasonable valuation.
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How do you anticipate market response to rising bond yields and geopolitical tensions, and which equity funds are promising in the current scenario?
Equity markets in India in the short term are being driven by global factors. Factors, such as rising bond yields in the US and Europe, and higher-than-expected oil prices have created a risky environment for a lot of assets. Geopolitical tensions in Israel, Gaza and Ukraine can also be impactful.
Stronger-than-expected US growth numbers means the tightening cycle can continue for longer. You can also see inflation getting sticky as commodity prices are staying up. All these factors coupled together are creating the market correction we are seeing now.
India remains an attractive investment destination, especially with China becoming less appealing for investors. Once we have seen the worst, the money should come to India because India’s fundamentals are better than all emerging markets. Despite recent foreign portfolio investment (FPI) flow slumps due to global factors, India’s fundamentals are superior. Expectations of 5-6 per cent
growth in gross domestic product (GDP), and reasonable valuations in large-cap stocks suggest that foreign investment will continue.
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Are hybrid funds better because of current risks?
Though bond prices may see a modest rise in the Indian fixed income market, it is not expected to rise much, as inflation is not a concern for us, and it is in the usual range, and is manageable. Fixed income, as an asset class, could provide reasonable returns over the medium term. Thus, our stance on equities and fixed income remain favourable. So, balanced and hybrid funds can be considered as they offer a blend of both and lower volatility compared to pure equity investments.
I urge investors to take a long term call on India and be long-term positive in picking stocks, rather than try to pick the top and the bottom of the market.
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