Samco Mutual Fund CEO Viraj Gandhi expects markets to remain nervous and highly responsive to news until after the elections. Some political analysts predict that the ruling party’s number of seats will stagnate compared to previous elections, which they say is even fueling negative sentiment. Deviations from expected poll results or seat numbers could narrow the market, especially in volatile times, he added. Amid elections, Mr Gandhi favors sectors such as manufacturing, infrastructure, emerging technologies such as waste and water management, EVs, hydropower and solar power.
Edited excerpts.
Why are markets falling as the election continues? Do you think they will continue falling through May?
Indian stock indexes have been experiencing some turmoil, with underlying factors including heavy selling in emerging market stocks by FIIs, amounting to around $2 billion in April and May alone. This sell-off appears to be largely driven by rising US yields. Additionally, there is speculation surrounding the next election, with some arguing that the ruling party’s number of seats may not improve significantly compared to the 2019 election. Some political analysts predict that the ruling party’s number of seats will stagnate compared to the previous election. Given the market momentum, such news created negative sentiment, resulting in a modest correction in securities trading. Markets are expected to remain nervous and highly sensitive to news until after the election. Therefore, it is imperative that investors exercise caution and make informed investment decisions during this period.
Did the market get ahead of the fundamentals in terms of valuations or was the risk reward favorable for Indian stocks?
Market momentum is strong and valuations are significantly higher than earnings. The Fed’s originally expected rate cut has been postponed until mid-year. As a result, India’s Monetary Policy Committee (MPC) may keep interest rates unchanged. In such an environment, revenue growth may fall short of expectations, especially if interest rates are high. It is wise to pause and look for valuable opportunities with a good margin of safety.
What kind of portfolio do you propose with elections in mind?
The current government’s emphasis on manufacturing and self-reliance is likely to drive the sector forward in the coming months. Companies with significant export exposure should be considered. Additionally, investments in infrastructure, emerging technologies such as waste and water management, EVs, hydropower and solar power are in line with the government’s focus on boosting India’s GDP and offer potential investment opportunities. doing.
Even if a Bharatiya Janata Party victory is priced in, what factors could lead to a strong market correction?
Deviations from expected poll results or seats can narrow the market, especially during volatile times. There are days when the benchmark index rises, but the discrepancy between trading volume and open interest could signal cracks in the strength of the rally.
What do you think about money? Should investors accumulate stocks or focus on stocks?
Gold has performed well since October, rising more than 30% from last month’s low to high. However, entering aggressively at such a high level can present challenges. To diversify your portfolio, you may want to consider initiating exposure during downturns, but these levels may not be sustainable, so it is wise to average out over the long term.
What sectors should investors avoid with elections in mind?
Consider avoiding sectors such as IT and financial services for now. The IT industry faces pressure from tighter U.S. yields and delayed order execution, while financial services is under increased scrutiny from regulators over curbs on unsecured lending.
Do you think there will be more consolidation in small- and mid-cap stocks this year? Will they continue to outperform large-cap stocks?
Opportunities remain in the small- and mid-cap sector with growth potential. Choosing the right company is important. A flexi-cap approach based on the businesses you own can help you effectively balance your portfolio.
Why has the number of IPOs decreased from 2015 to the present? Will the situation remain calm throughout the year?
Liquidity has already been sucked out of the system as the market has seen a large number of QIPs, IPOs etc in the past year. Therefore, it is likely to remain subdued in the coming months.
FPIs were net sellers again last month. Will this trend change after the election?
In India, FPIs invest in the primary market but exit the secondary market. From the first year of 2025, FPI has injected $1.7 billion into the secondary market while withdrawing his $3.6 billion from the secondary market. This trend is not limited to India. Globally, emerging market stocks excluding China recorded outflows of about $8 billion in April, while India saw outflows of $1.3 billion. This trend can be attributed to the tightening of US yields. If US yields tighten post-election, FPIs may extend their selling activity.
What is your advice to new investors?
New investors (especially those who entered the market post-COVID-19) may not have encountered a market correction before. Market movements are cyclical, and mistakes during corrections can result in significant losses for new investors. Therefore, it is important to conduct thorough due diligence and practice effective risk management before making any investment decisions. Hasty or speculative investment choices can have serious consequences.
Against the backdrop of geopolitical uncertainty, interest rate fluctuations and impending general elections, what are the factors motivating fund houses to consider the special opportunity fund concept?
In sideways or correction markets, fund houses often pivot to investing in special opportunities. At these times when stocks lack momentum, mergers, spin-offs, and other corporate activities offer attractive prospects for large returns. A prime example is Warren Buffett, who effectively utilized special-situation investing during his time as executive director of Buffett Partnership Limited, achieving an astonishing CAGR of 31.6% and outperforming the Dow. This is an increase of more than 20% per year. Many investors thrive in bull markets, but what truly sets successful investors apart is their ability to identify and take advantage of special opportunities in market corrections or mean reversals.
How does Samco Mutual Fund differentiate its Special Opportunity Fund from other funds in the market and how much money is Samco MF targeting through this NFO?
Samco Special Opportunities Fund stands out for its innovative approach, utilizing a unique DISRUPTION model to precisely identify investment opportunities. The model consists of 10 different sub-strategies, each tailored to account for special situations across different sectors and themes. This systematic approach allows the Fund to generate a wide range of investment ideas and take advantage of disruption and unique circumstances to pursue growth and value for investors.
Additionally, the model provides strategic flexibility, allowing the fund to adapt to evolving market trends and the potential to grow even in dynamic conditions. The fund focuses on diversification and potential tax benefits, offering unique benefits for investors seeking diversified exposure and growth opportunities across a variety of sectors.
Disclaimer: The views and recommendations above are those of individual analysts or brokerages and not of Mint. We recommend checking with a certified professional before making any investment decisions.
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