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    Midcaps' rise will be swift and quick as sentiment revives: Nirmal Jain

    nirmal-jainAgencies

    Story outline

    • When we talk about midcaps and smallcaps, you cannot paint them with one brush.
    • There will be continuity in reforms. Market has already discounted that.
    • Public sector banks have already seen the trough and they are going to revive.
    Election is short term factor, earnings maybe mid term and economy is long term.
    There are three Es that matter to the market -- elections, economy and earnings. We are in an environment when all these three Es are uncertain today, Nirmal Jain, Founder & Chairman, IIFL, told ETNow during an interview.

    Edited excerpts:


    I want to start off by understanding the main theme of the conference that is under way -- the IIFL global investors’ conference. What exactly is the theme that is being held because right now, we are staring at the general election shortly, the earnings picture seems to be a bit mixed and the markets are seeing massive drubbing specially with midcaps. Tell us a little bit about who is attending this conference this time around and what is the special message you have for clients?

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    This time, it is very interesting theme because for equity there are three Es that matter and we are in an environment when all these three Es are uncertain today. Those three Es are elections, economy and earnings. And people do not have a consensus on how these things will pan out. And obviously we are trying to get perspective of experts on all these three Es.

    For elections, we have expert speakers like Shekhar Gupta and Sandeep Shastri. For economy, we have Amitabh Kant and Sujoy Ghosh and some other speakers. And for earnings, we got corporates. This time, we have an overwhelming response. We are getting about 125 large corporates and there will be about 500-600 fund managers from all over the world where we can discuss. Besides, there is another important thing which everybody is concerned about or will probably impact corporate performances, going forward. That's the technology data analytics and artificial intelligence.

    We have Amin Toofani who is coming from Singularity University which is the most famous university that has worked on digital transformation as well as technology. And we have quite a few special speakers and these are times when there are a lot of uncertainties and that is what makes equity very exciting because if you go and look at history, then people had made money in equities only in uncertain times. And I think there is lot of excitement and interest from investors as well as corporates.

    So out of these three Es, which would you say the market would be most concerned about – elections, earnings or economy?

    It is very interesting. First E election basically will be in just three months. But many long-term investors will look at that as an opportunity to time the investment rather than whether they will make investment or not. India as an economy everybody knows regardless of which government comes to power is the fastest growing economy and is doing well.

    When you look at three months, then basically the elections matter more. If you look at six months because people might look at June and September quarter results, then earnings matter. And if you really look at a long-term investor, if you are a long only fund manager and you are looking for opportunities, then you look at first two Es as an opportunity to bet on the third E, which is economy.

    All these Es are important, but they have a different time perspective at this point in time. Election is short term, earnings maybe mid term and economy is long term.

    Which part of the cycle would you say that we are in right now because the index is led up but it is led only by handful of select names and the broader markets continue to be in the dumps, I mean year to date the midcap index has fallen a good 7 per cent at a time when the Nifty is just about in the green?

    I am an optimist. With that caveat, I will say markets will rally after elections. So it is just a consolidation phase for the next three months. We are in a cycle in terms of where it is going to turn around upwards in a few months. That is what my personal view is. And we have always seen that when markets are going downward, there is a flight to safety because fund managers still have got corpus of money to be invested in equity and they tend to prefer largecaps and the safer bets in this kind of scenario.

    But when market turns around, quality midcaps and smallcaps will give you superior returns. Quality is a very important adjective. But when we talk about midcaps and smallcaps, you cannot paint them with one brush because even in BSE 500 stocks, not all of them are performing equal or they were created equal also. If you are bottom-up stock picker, then you will have good value in midcaps and smallcaps. But if the market does well, then largecap will also rally along with the market.

    How do you think the markets are going to respond to a likely weak performance of the BJP in the general elections or perhaps a non-Modi PM candidate? Is that a possibility because it seems to be discussed in the markets?

    I think market has already factored in that there will be weaker performance. Market might be expecting, I am not a political expert, I mean our conference will have some psephologists and some political experts as well. But whatever little my view as any other common citizen's view is that the BJP may get 220 kind of seats and still will form the government. So, there will be continuity in reforms. Market has already discounted that.

    Now, financial service is expected to contribute the most to earnings over the next few years. You are from the sector as well. How do you see key sections of this space lead earnings over the next few years?

    The financial services sector is passing through a very interesting time. There are various segments of financial services, which are financing or lending such as public and private banks and NBFCs. And then you can also have the capital market players, they are into securities or wealth management services. Public sector banks have already seen the trough and they are going to revive because with the resolution in the bankruptcy, many of them are getting some of their money back.

    But still, it is a while away and the investors have to get confidence in stable policy framework from the government. Private banks have been doing well and NBFCs have passed through a very very interesting time when post sort of default by IL&FS, we saw that there is a liquidity squeeze, a lot of rumours and in India the media and social media get hyper active. That has basically sort of aggravated the liquidity situation for many NBFCs.

    Along with that, we saw that some of the promoters that were excessively pledged also became victim of a volatile market.

    As for midcaps, I am sure, a lot of non-index companies including like your own have fallen, what is the call in some of them despite good earnings and low volumes? What is the view per se overall on midcaps and how soon are we likely to see a recovery or at least some catch-up with the benchmark?


    It is a good question to discuss at this point in time. What I have seen is that many midcaps including the financial services sector in which my company is part of have fallen significantly with very low volumes. If you look at the delivery volumes of many of these midcap stocks, they have been abysmally low, there are hardly any volumes.

    So these are times when most people stay away and even a small selling can push down the prices more than the proportional part. But the reverse happens when the market and the sentiment recovers and there are very few contrarian investors who make the most of it, that is they would be buying when the market is falling because they try and look at it as a falling knife and nobody tries to catch the falling knife because the prices can fall steeply with very low volumes.

    My opinion is that many midcaps that are fundamentally good have corrected in the financial sector, but elsewhere too they have fallen very very significantly primarily.

    Whenever sentiment recovers, market recovers and we have seen in this past, I mean, this a story which has been told earlier also that their rise is also equally swift and equally quick.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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