Banking and IT stocks have reached very reasonable valuations: Arun Malhotra of CapGrow Capital Advisors

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We believe that a large number of stocks in sectors such as banking and IT have reached very reasonable valuations, given the integrated growth of strong franchises and their strategic positioning, says Arun Malhotra, Founding Partner and Portfolio Manager, CapGrow Capital Advisors.

In an interview with ETMarkets, Malhotra said he is wary of the price movement of some small- and mid-cap stocks, and currently large-cap stocks offer a better reward for risk compared to the small- and mid-cap space. . Edited excerpts:

A volatile week for the markets but the bears remained in check for the week ending April 29th. What led to the price action?

Volatility is going to be part of the game for the next 6 months or so. There are enough macroeconomic factors that add uncertainty to the stock markets: a) high commodity prices, supply disruptions, b) the Russia-Ukraine crisis, and c) the pace of rising global interest rates.

Current Indian stock markets are also behaving similarly.

On a monthly basis for April, benchmarks could end flat with a negative bias. How is the market likely to move in the May series? What are the important levels to follow in Nifty as well as Nifty Bank?

I believe the markets are in a zone where any slight negative result will have a bigger impact and will be severely punished.

Even downhill results go unnoticed. Take the results of Infosys and Axis Bank where the outlook is bullish, but stocks are down. Markets will be limited between 16,000 and 17,500 Nifty levels.

Will “Sell in May and leave” happen in 2022? FIIs sold more than Rs 37,000 cr in the spot market of the Indian stock market in April.

We are seeing continued selling over the past few months and May may not be another story.

But we believe that a large number of stocks in sectors such as banking and IT have reached very reasonable valuations, given the integrated growth of strong franchises and their strategic positioning.

So we’re almost near the bottom in those areas. Commodities may be an area where we could see a sell-off.

The IT index fell more than 10% in April. What does the structure of the graph suggest? What were the reasons for the fall?

The IT sell-off is driven by concerns over the US economy where we may see interest rates rise to contain inflationary pressures. This can affect spending by US companies, including their IT budgets.

Another reason is the sharp price corrections we have recently seen in Nasdaq IT stocks which are shifting to Indian IT stocks.

Our fundamental view is that the IT demand scenario remains robust and this is a structural shift, and we will continue to see more and more contracts closed.

The BSE Small & Midcap indices rose more than 3.5% in April against the lackluster performance of Sensex and Nifty. What drove the price action and how should investors play this space in May?

We are wary of price action in certain small and mid cap segments, and currently large cap stocks offer a better reward for risk compared to small and mid caps. It’s time to change and increase the weightings in large caps.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)

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