Markets likely to remain volatile; prioritise numbers over narratives, says Sushant Bhansali of Ambit Asset Management

Markets have been swinging between gains and losses in the last week. Even after an almost 2 percent fall in August so far, Sushant Bhansali, CEO, Ambit Asset Management, does not foresee any substantial correction in the market in the near future. Although, volatility could persist, driven by both domestic and global economic data, he added. He advised investors to focus on building a portfolio centered on earnings growth, and be cautious where extreme optimism has been priced in. The strategy should be to prioritise numbers over narratives, said the expert. 

Edited Excerpts:

Markets are down 2% in August so far after hitting record highs in July. What is happening?

Volatility and equity markets always go hand in hand. One cannot expect to make positive returns in equity markets every day, every week, every month, or even every year. Investors must brace for volatility to create wealth through equity markets in the long term; patience is key. The last year for the Nifty has seen a return of 25 percent, and short-term volatility is expected after such gains.

How long do you see this correction phase lasting?

We do not foresee any substantial correction in the market in the near future, although volatility could persist, driven by both domestic and global economic data.

What domestic and global trends will impact market performance for the remainder of 2024?

The Federal Reserve’s trajectory on interest rates, the subsequent impact on liquidity, earnings growth, and commodity prices are key factors to watch.

Which sectors should one avoid in the current volatile market environment?

Sectors such as automobiles, commodities, and certain segments within capital goods where growth has already been priced in should be avoided.

Foreign investors have also continuously been withdrawing. What led to that? How long will this continue?

FIIs are assessing India relative to other markets in the context of valuations. Given that India has significantly outperformed its peers, FIIs have been booking profits. However, with the rising weightage of India in global benchmark indices, this trend is unlikely to last long.

What strategy for equity investment would you suggest to someone who wants to start building a portfolio now?

Focus on building a portfolio centered on earnings growth, and be cautious where extreme optimism has been priced in. The strategy should be to prioritise numbers over narratives.

Apart from equity, which asset classes would you recommend for a model portfolio of a long-term investor?

Fixed income should be part of the asset allocation for long-term investors to hedge against volatility. Exposure to real estate and gold through innovative instruments like REITs, InvITs, and SGBs should also be considered.

Do you believe, as a whole, markets will deliver muted returns in 2024?

After a remarkable rally in 2023, there was a high probability of muted returns in 2024. However, so far, 2024 has been good for equities despite political and global volatility. Going forward, stock picking and allocating to companies with growth and strong governance will be key differentiators.

In this environment, should investors stay away from micro-cap stocks? What key things must one look for in such a stock before investing?

One should not completely avoid any segment of the market at any point in time; allocations can be adjusted depending on the economic environment and valuations. Micro-cap stocks of yesterday are today’s smallcaps. Earnings growth, execution, management quality, and GARP (Growth at a Reasonable Price) are some important traits to consider. We have launched MICROMARVELS, identifying micro companies where earnings can double in 3-4 years.

What’s the next big theme for markets that investors should now turn to?

Consumption could be the next big theme for markets. Similarly, a long-term focus on small manufacturing businesses could be quite rewarding, as we believe India is at the cusp of a manufacturing boom—producing goods for enhanced domestic consumption, replacing imports, and exporting globally.

What’s the biggest challenge you are facing with the markets right now?

The biggest challenge is the uncertainty stemming from global developments, coupled with a macroeconomic slowdown in developed economies and its implications for emerging markets, including India.

Are you satisfied with the June quarter earnings?

The earnings season scorecard was weak, with Nifty companies delivering mid-single-digit earnings growth. However, certain mid and small-cap companies managed to deliver strong double-digit growth, so opportunities still exist for those who engage in bottom-up stock picking.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.