The safe haven right now is Nasdaq: Market analyst Rakesh Bansal

Stock market analyst Dr Rakesh Bansal, speaking to The Federal, said the current stock market correction could increase the pressure on Indian IT stocks, and that he would not be surprised if some of them trade at 10-year lows over the coming one or two years.

He said there are several factors that have led to the correction in the market, including high US bond yields, possible rate hikes by the RBI, and rising crude oil prices.

He also shared his opinion on which sectors investors could focus on, and how retail investors should approach possible losses in their trading.

Edited excerpts from the interview:

Why is the market seeing such a correction?

The markets are falling because of the rate hike of bonds in the US. When one is getting a 5 per cent plus yield in the US, why will one play in the global markets? US funds and US money are going to move out of emerging markets.

Secondly, the market has discounted the RBI rate hike which we might see in October.

Thirdly, crude oil price could increase by USD 8-10. Crude oil is spoiling the party.

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We have witnessed a breakdown below the 23,100 level, and we might see levels of around 22,100 on the downside on the Nifty. At the same time, we are seeing a sell-off in gold, silver, and metals. It is a global sell-off. Money is moving out of India and emerging markets.

The safe haven now, I think, is the Nasdaq, which is one of those benchmark global indices that are trading near their all-time highs.

What should retail investors stay away from, and which sectors should they focus on?

We should all understand that global investors move money from one country to another at the click of a button. Money has no boundaries.

You and I cannot park our money in the US or buy stocks outside India, but all these funds can do this. The Nifty IT index is underperforming, but the Nasdaq, which is also an IT index, is outperforming. I feel we should clearly avoid IT stocks. I would not be surprised if we see our IT stocks trading at 10-year lows in the next one or two years.

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I would clearly avoid FMCG and defence stocks also.

The sectors which look good to me to buy on dips are pharma and healthcare. I also like AI and data centre stocks.

What risks should a retail investor keep in mind before investing?

If you are a retail investor, you should not put your hard-earned money into individual stocks.

Enter the market through a mutual fund or buy ETFs. Even if by chance you choose an ETF which is underperforming, you will not see a big erosion in your capital.

Given the panic among retail investors, how should those already sitting on losses deal with them?

Nobody can recover losses overnight. The people who are panicking are those who have invested in the market for quick gains.

The market will give you compounding, which is what everyone is looking for. If you get anywhere between 14 and 17 per cent gains, that is very good. But people are coming into the market for 10 to 15 per cent gains in a month or in a week, and that is not possible.

One should enter the market with realistic expectations. For unrealistic gains, one takes undue risk.

Are there any other sectors you would consider at this point?

The sector which I like the most is the capital market. Capital market, indirectly, is the wealth management sector, and wealth management is one of the fastest-growing sectors.

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Right now, the capital market is going through a correction. The Nifty Capital Market Index is also listed, and we have the Capital Market ETF also. One can do scattered buying in the Capital Market ETF or start an SIP in the Capital Market ETF.

How do you see the performance of the IPOs that have come recently, including the NSE listing?

So many IPOs have come to the market in the past two years, but the majority of them are trading below the IPO price.One should be very choosy - look at the valuations, at positive cash flow, which is very important.

If you are talking about NSE, the issue is that most retail investors bought this stock in the unlisted market. If this IPO had happened in 2018-19, then things would have been different. Everybody wants to do futures and options, and NSE is the biggest derivatives exchange in the world.

I feel NSE is a currency-printing machine. You buy equity, you do futures, you do options, you make profit or you incur losses — NSE will get its share. I feel NSE is a good stock to buy for the long term. It is a stock that one should buy not for three or four years, but with the next generation in mind.

What parameters should young or new investors consider while researching a stock?

Young investors should stay away from Futures & Options, especially options.

If you are a retail investor, then two things are very important. One should look at the top line (revenue) and the bottom line (profit). If these are good, then one should look at promoter holding, which I feel should be decent.

Then one should look at debt, and at the FII stake. When we talk about FII, these days FII also means entities registered at places like Mauritius and other countries. Also consider the DII stake, and the retail public holding. Any company with retail holding of less than 12 per cent looks good to me.

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LIC Housing Finance is a good company with good management, trading at a P/E of five. PNB Housing, and I think most companies in this space, are trading anywhere between a P/E of 13 and 17. I feel LIC Housing Finance has the potential to triple from here. If you look at its shareholding, retail shareholding is less than 12 per cent.

Can you say the biggest risk is not taking any risk?

Let me tell you very frankly. Either you are an IITian and are getting a good salary, or you are an IPS or IAS officer and your future is secured. But most people are not like that. So, from where will you create wealth?

The stock market is a fantastic vehicle that can change your class. But it is going to happen gradually. One can move from the lower middle class to the middle class, middle class to upper middle class, and upper middle class to HNI, but this will take time. It is not going to happen overnight.

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Real estate has also created wealth, maybe more wealth than the stock market. But real estate wealth is on paper only. Nobody sells real estate at a profit and enjoys the money.

The stock market money improves your cash flow and improves your quality of life.

What is your final advice for investors and traders?

If you are an investor, invest through mutual funds or ETFs, think long term, and think about wealth creation.

If you are a trader, then you need to work on your strategies and take action accordingly.

(The content above is for information only, and does not constitute investment advice.)