Demonetisation Impact Factored In; Avoid Tech Stocks, Says Dipan Mehta
Investors looking beyond the demonitisation effect, says market veteran Dipan Mehta.
A combination of short-covering and domestic funds lending support to counter the selling by foreign funds has driven the NSE Nifty 50 Index back above 8,300 levels. That’s the word coming in from Dipan Mehta, member of BSE.
Mehta believes the impact of demonetisation has been factored in and the market is now starting to focus on the next set of events such as the third quarter earnings season beginning next week and the Union Budget.
“It appears that the demonetisation effect will be over and done with by March quarter or so and growth rates should be back to pre-November 8 levels,” he told BloombergQuint in a telephonic conversation.
He advises investors to buy select shares of auto, banking, consumer or pharma companies.
Here are the edited excerpts from the conversation:
Nifty hit 8,300 in early trade today. Is this an indication of further upmove?
I think the effect of demonetisation has been priced in. Investors are looking beyond demonetisation; [they are looking] towards Budget, earnings season. Overall, liquidity seems to be strong with bulging deposits and increased focus towards financial savings. We are seeing domestic investors getting quite active in the market. All in all, it appears that the demonetisation effect will be over and done with by March quarter or so and growth rates should be back to pre-November 8 levels.
FII participation has not completely returned yet. So, this recent Nifty upmove is purely domestic-driven?
Yes; but domestic funds have been increasing in size and quantum over the past two-three years and lot of it is coming from MFs and SIPs, which is very heartening because it is long-term money. At the same time, the quantum of FII outflows has slowed down, which can easily been absorbed by domestic investors. Also, some amount of short-covering is also in play while traders are taking long positions as well. So all these factors are at play. Technically, the market structure also seems to have improved significantly with key resistance levels being pierced and support levels not being violated.
What do you think will be Nifty’s trajectory in the near-term?
Directionally, we feel it’s a sideways market with some positive upward bias and a lot of news flow is expected over the next three-four weeks, which may impact sentiment. We are going into news events like earnings season, budget and if news follows through, we will see a continuation of this rally. But if the news get ugly, then we may see some correction taking place.
What should investors look to pick up?
Go for companies, which have survived demonetisation well; be it auto, banks, consumer or pharma. Wherever the companies are showing strength in the individual business models, investors should focus there and the strategy has to be bottom-up rather than top-down.
What is your call on the I.T. sector? It is the only one that has been falling since yesterday.
Our view on I.T. has been negative. It has always been so for the past year or so. Nothing has changed.