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Use market corrections to invest periodically to create wealth, says Geojit's Satish Menon

Interview, Satish Menon, executive director at Geojit Financial Services

Satish Menon

Equity market investors have endured a roller-coaster ride, amid a surge in inflation, rising interest rates, continued sell-off by foreign institutional investors, and the Russia-Ukraine conflict. Since the October 2021 peak, benchmark indices have corrected more than 11 per cent.

Satish Menon, executive director at Geojit Financial Services, feels stocks are now in oversold territory and therefore there may be pockets of opportunity for investors. In an interview with THE WEEK, he was positive on sectors like FMCG, agriculture, telecom and banks.

Equity markets have corrected significantly from their highs. There is extreme volatility too. How do you see things panning out from here over three-six months?

In the short to medium-term, we are positive because a good part of the inflationary pressure, tightening monetary policy and slowing economy has been factored in the market. Broad market’s price and valuation has corrected by 15 per cent to 20 per cent, stocks have taken a heavy beating, taking the stocks to oversold territory, thereby creating opportunity to capitalise from the upcoming rally.

Inflation has surged globally, geopolitical tensions too are high, central banks are raising interest rates, and FIIs are pulling out huge amounts of money. In such a scenario, do you think equity markets are in for a long bear phase?

The performance of equity will be polarised in the next one to two years. However, we expect defensives and value stocks to perform better than the broad market. Performance of growth stocks will be volatile though they have the opportunity in the short-term due to heavy correction. Investors should transform the DNA of their portfolio accordingly and have a conservative structure. A rationale investor will be able to generate alpha returns even in a volatile market with a proactive and structured portfolio.

There was a surge in new investors during the pandemic. Now, they have been jolted by the market correction. What should investors do?

People come to stock markets to create wealth, and I am of the view that long term wealth can be created by investors by buying stocks of good companies at good valuations and staying invested. New investors who came into the market with this objective need not be disheartened due to these corrections. History has proven that such corrections are much needed for the markets and can be used by investors to invest periodically to create wealth in the long term. If their choice of stocks is good, they can stay invested.

The problem is for those new investors who are active traders, especially those who trade in F&O, and most of them would have incurred a loss. Active trading is not everyone’s cup of tea, it is only suited to those investors who equip themselves with knowledge and have the time and aptitude to understand the trading nuances, which unfortunately, most of them lack. Such corrections can be used by them to reflect on their style of trading and then make a conscious decision, whether to continue active trading or move to disciplined and systematic style of investments.

RBI surprised everyone by an out-of-turn repo rate hike in May. The indications are there will be another rate hike in the next monetary policy committee meeting. Overall, how much more rate hikes do you envisage in the current financial year?

The market expects 25 bps to 35 bps rate hike in June policy, followed by a total hike of 75 bps to 100 bps in FY23, depending on economic data. The RBI rate hikes will be announced taking into consideration the global rate hikes, domestic and international inflation, and ways to strengthen the rupee in a volatile global currency market.

Given the correction we have had in stocks, are there areas/sectors looking attractive now? Where would you invest right now or wait for the more clarity to emerge?

I recommend investing in value stocks and secured sectors like FMCG, agri and telecom. I am also positive on banks, which are trading at below long-term average valuations. And importantly, business dynamics are improving, like credit growth and drop in non-performing assets (NPA). I am also positive on the manufacturing sector in India, led by progressive reforms. Based on this, capital goods and industrials are also expected to perform well, supported by high FDI inflows and growing domestic economy. Green energy initiatives are also upcoming areas of investment.