Sonam Srivastava, Founder and Fund Manager at Wright Research, has indicated that value stocks are positioned to lead the next phase of the market rally due to their undervalued valuations, potential economic recovery, and a favorable interest rate environment.
In an interview with ETMarkets, Srivastava highlighted that while growth stocks might also witness a resurgence, current market conditions favor value stocks because of their potential for outperforming and the strong underlying economic fundamentals. Key excerpts from the interview are as follows:
The market has recently experienced significant volatility, touching record highs before undergoing mild consolidation. However, the market remains bullish as buying continues during dips despite the pullback. This volatility reflects the influence of economic and geopolitical factors.
The evolving interest rate environment, concerns about slowing growth, and the attractiveness of defensive and value stocks are shaping the market’s future direction. A soft landing is possible, contingent upon central banks’ management of interest rate adjustments and global economies’ responses to challenges. Long-term perspectives and portfolio diversification are essential strategies for mitigating risks and making informed investment decisions.
Despite global market volatility, India’s market has shown resilience, largely due to strong domestic fundamentals such as robust economic growth, increased market penetration, domestic investment participation, emerging industries, supportive government policies, and favorable macroeconomic factors. External factors may influence domestic markets, but India’s strong fundamentals provide a solid foundation for sustained market growth.
The FMCG index has reached an all-time high, and there are notable movements in the pharma sector. This trend aligns with the typical behavior at the start of interest rate cutting cycles, where investors lean towards sectors with stable earnings and growth potential, such as consumption and pharma stocks. Thorough research and consideration of individual company fundamentals remain crucial for making informed investment decisions.
Currently, Wright Research is overweight in defensive sectors like consumption, consumer durables, pharma, and agrochemicals due to their stability and growth potential in uncertain market conditions. Conversely, they are underweight in infrastructure, defense, railways, and PSUs, given challenges and potential underperformance in the current environment, though growth is anticipated to return to these sectors soon.
Value stocks are expected to lead the next leg of the market rally, driven by undervalued valuations, anticipated economic recovery, and a favorable interest rate climate. Although growth stocks may also rise, the present conditions generally favor value stocks due to their potential for outperformance.
The increase in traction for new-age stocks signals rising investor confidence in their growth potential, supported by improving fundamentals, technological advancements, changing market dynamics, and favorable regulatory conditions. However, a balanced and diversified portfolio is vital for managing risks.
Regarding the IPO market, sectors like consumer durables, discretionary goods, luxury goods, specialty chemicals, and new-age manufacturing hold promise. These sectors benefit from favorable market dynamics, increasing consumer demand, and technological innovations. Investors should view IPOs as potential long-term opportunities rather than quick profit schemes.
India’s valuations generally trade at a premium compared to other emerging markets due to strong economic growth prospects, a large and growing domestic market, and a favorable demographic dividend. Current valuations, while somewhat higher, are not excessively so, suggesting continued market robustness.
Disclaimer: The views and opinions expressed are those of the experts alone and do not reflect the views of the Economic Times.