Expert view: Don’t try to time the market; expect value stocks to perform better, says Sujan Hajra of Anand Rathi

Expert view: Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers, says investors should avoid trying to time the market and adhere to strategic asset allocation for long-term superior risk-adjusted returns. In an interview with LiveMint, Hajra said value stocks will perform better than growth stocks in a falling interest rate environment. Edited excerpts:

What is the near-term outlook for the market? Should we stay cautious and hold some cash?

Various experts have expressed concern about the equity market outlook for the last six months. 

Yet, during this period, large-cap indices have risen by about 15 per cent, and mid- and small-cap indices are up by about 20 per cent, so these concerns have not materialised so far. 

Attempting to predict the near-term market outlook is akin to trying to time the market, which is difficult to do consistently. 

Therefore, we should avoid trying to time the market and adhere to strategic asset allocation for long-term superior risk-adjusted returns.

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There appears to be a shift in the narrative from 'sell China, buy India' to 'buy China, sell India' by foreign institutional investors. When do you expect foreign investors to resume buying Indian equities?

The equity market outlook depends on macroeconomic factors, corporate earnings performance, and equity valuations in the medium to long term. 

By most measures, the outlook for the Indian equity market is decisively better than that of the Chinese market. 

However, with Indian equities providing much better returns than China over the past year, the valuation differential between India and China has widened. 

Some experts suggest reallocating funds from India to China due to this valuation gap.

It's important to note that Indian equities have almost always commanded a premium over Chinese equities. 

Superior earnings performance and return ratios of Indian equities, along with sectoral differences between Indian and Chinese indices, contribute to this premium. 

Sectors such as private banks, IT, oil refining, auto, and FMCG, which have higher valuation multiples globally, constitute about 70 per cent of the index weight in India. 

In contrast, sectors with lower valuation multiples, such as industrial products and materials, have a higher weight in Chinese indices. 

Given these factors, we expect medium to long-term cross-border portfolio inflows into Indian equities to remain positive and substantial.

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How far are we from the rate cuts? The market seems to have discounted the possibility of two rate cuts this year. Will the actual event have any impact on sentiment?

Despite a substantial decline in retail inflation in India, strong growth momentum, the risk of rising food prices, and global uncertainties are preventing the Reserve Bank of India from reducing the monetary policy rate. 

We expect the RBI to maintain the status quo for at least the current calendar year, if not the current financial year.

Also Read: April CPI inflation hits an 11-month low; can RBI cut rates in the near future? Experts weigh in

The monsoon is expected to remain normal this year. Do you expect a significant change in inflation and growth trajectory as a result?

A normal monsoon has a positive impact on agricultural GDP and rural demand. 

Consequently, if the forthcoming monsoon is normal, we would expect a greater-than-anticipated fall in inflation and better-than-expected GDP and corporate earnings growth. 

However, given the declining impact of agriculture on overall GDP, we do not expect the impact on overall growth numbers to be very substantial, although the positive effect of lower food prices on inflation could be significant.

What sectors are you positive about for the medium term? Should we tilt towards defensives?

In a falling interest rate environment, we expect value stocks to perform better than growth stocks. 

Many growth sectors, such as infrastructure, capital goods, defence, and realty, have seen substantial gains over the past year, and earnings expectations remain high. Given this, we are turning slightly defensive. 

We are positive on IT, pharma, and consumer-related sectors, and are also becoming marginally positive on the financial sector.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.