Dalal Street Voice: After a decent run, commodities are due for a pullback: Devarsh Vakil of HDFC Securities

Devarsh Vakil- Deputy Head of Retail Research, HDFC Securities said that richly valued consumption stocks will have tough time passing on higher prices to customers. Commodities have had a decent run and it is due for a pullback.  

In an interview with Zeebiz's Kshitij Anand, Vakil said that Gold is a hedge against accidents in financial systems, and we recommend a 5% exposure to Gold as a portfolio hedge.

Edited excerpts:

Q) What does the BJP win in 4 states mean for markets, economy and reforms?

A) Markets hate uncertainty, and the outcome of these state elections will provide policy continuity and stability.

Based on this mandate, the Central government will be buoyed to carry out its agenda confidently and look for opportunities to pursue economic reforms.

Q) The war-like scenario must have wiped out a good 5-10% of investor portfolio in a matter of weeks. What advice would you like to give to investors. Should one stay put, add on dips or cash out – what does the history suggest?

A) Despite wars and famines, the history of markets suggests that indices have scaled newer and higher peaks. Whether one should buy or add to his portfolio depends on the available cash with investors.

We asked investors to generate cash in Mid-January anticipating market volatility.

We have been recommending gradual redeployment of that liquidity though keep some powder dry to take care of unforeseen volatility.

Q) With interest rates likely to head North, what is the right strategy for MF investors? Should they look at tweaking their asset allocation?

A) Asset allocation depends on an individual’s risk appetite and return expectations. It is different and unique for every individual.

SIP is generally a smarter way to invest but if one is comfortable with risks of short-term volatility, recent falls do provide an opportunity to deploy some cash on a lump-sum basis.

Q) Retail investors reaffirmed their faith in equities amid volatility (geopolitical towards later part of the month) as equity funds saw a net increase of more than Rs 19000 cr in February. What is your view and do you think this war-like scenario could result in a slowdown in the flows?

A) We do not expect a slowdown of flows from retail investors – tax savings / ELSS schemes should attract significant flows in the month of March.

Q) Crude above $100 – what is the kind of impact you foresee on markets, economy and India Inc. in upcoming quarters?

A) Crude prices have been volatile lately and have now corrected below the $100 mark, while briefly trading above $130 mark last week.  

Higher crude oil and other commodities like metals, gas, edible oils prices which are imported into India will push up prices across the board.  

Manufacturers were anyway struggling to increase the product prices before the current bout of surge in commodity prices and now this will dent the margins for sure. Many small and marginal manufacturing players will stare at losses in orders on hand.

Q) Gold has become buyers' delight. What should be the strategy in case someone plans to put fresh money in the yellow metal? Should they buy physical Gold or digital and why?

A) Digital gold is preferable as it does not present challenges of storage and easier to transact.

Gold is a hedge against accidents in financial systems. Allocation to gold depends on the individual’s needs and risk appetite as per her asset allocation plan.  We recommend a 5% exposure to Gold as a portfolio hedge.

Q) What is your take on the rupee? Which sectors could get impacted the most from recent volatility?

A) Boiling oil prices and consistent FIIs withdrawal on geopolitical jitters pushed the rupee to all-time lows last week. The USD/INR pair fell from the highs of 77.17 after OPEC promised to pump more oil to fix the demand-supply imbalance.

A 25-basis point rate hike by US FOMC's meet is on the cards. We expect spot USDINR to consolidate in the range of 75.5 to 77 for this quarter.

Q) Are there any sectors that you think have run out of steam and investors should ideally look at booking profits or trimming their positions?

A) Richly valued consumption stocks will have a tough time passing on higher prices to customers. Commodities have had a decent run and it is due for a pullback.  

Investors should pull back some exposure from these sectors and redeploy the same in financials.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)