stock market strategy: ETMarkets Smart Talk: discount on D-St! Dr VK Vijayakumar’s mantra for picking stocks in bear markets

“Buying in the current market should not be based on how far the stock has corrected from their peak. Buying should be based on fundamentals and outlook,” says Dr VK VijayakumarChief Investment Strategist at Geojit Financial Services.

In an interview with ETMarkets, Vijayakumar said: “Financials, especially leading banks, are now good bargains as their valuations have only fallen due to FII sales,” edited excerpts:

With central banks looking to tighten money supply – what is your view on markets in the medium to long term?
The market’s medium to long-term trend would depend on how aggressive the monetary tightening would be.

If the US Fed’s indication is that final yields will rise above 3.75 percent by the end of this tightening cycle, markets are likely to turn bearish.



Much would depend on the nature of inflation and the price of crude oil.

Encouraging data from MF in May and SIP flows have increased marginally, which is a positive sign, but redemptions are also underway. But do you expect more resources to be allocated to fixed income versus equities?
More money may go into fixed income if stock returns are poor until 2022.

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If the market recovers and delivers decent returns, equity fund flows will remain resilient.

If anyone is planning to put Rs 10 lakh now which is the ideal medium. What is the ideal asset allocation strategy?
60 percent of the amount can be invested in mutual funds through a Systematic Transfer Plan (STP) spread over 10 months. 30 percent can be invested in short-term debt funds. 5 percent may be parked in liquid funds and 5 percent in gold ETFs.

Do you think FDs will now become more popular, at least for the risk averse investor in light of the rising interest rate scenario?
FDs are unlikely to become popular as inflation is high and real returns are negative. Average inflation in FY 23 will be around 6.5 percent, meaning the real returns of FDs will be negative. It will be hugely negative for taxpayers in the 20 or 30 percent tax bracket.

We saw the rupee bottom out in June – which stocks or sectors are likely to benefit the most from the gains?
All exporters will benefit from the depreciation of the Indian Rupee (INR). The two major sectors are IT and pharmaceuticals.

IT and pharma contribute 15 percent and 5 percent respectively to Nifty’s revenues, so the INR write-off could also be a headwind for Nifty’s revenues in FY 23.

Specialty chemicals, textiles and certain segments of cars can also benefit from the depreciation of INR.

Crude oil also hovers around $120/bbl – which may not put India in a comfortable scenario if it stays around this level. How will it affect the economy and valuations?
Crude at $120 is a major macro headwind. This could bring our current account deficit in FY23 to about 3.3 percent.

If the war in Ukraine escalates and pushes crude oil above $130, the ramifications for the economy and markets will be dire. The reverse will be true when the war ends and raw and other resources diminish.

Do you think this would dent valuations if interest rates rise?
Rising interest rates should logically push valuations down. As interest rates rise, the present value of future profits will decline.

This is more relevant now that valuations are higher than long-term averages. Nifty at 16000 is trading at over 18 times earnings for FY23 at the long-term average of 16.

FII sale in India is part of a larger global sale. When will FIIs reverse the trend and does that mean heavy FII stocks where they have double digit holdings could continue to be under pressure?
As long as dollar and US bond yields rise, FIIs will continue to sell. They won’t stop selling until dollar and bond yields stabilize, which in turn will depend on US inflation and Fed policy.

There are plenty of stocks trading at double-digit discounts compared to their 52-week highs. What is the right strategy when buying a falling knife?
Buying in the current market should not be based on how far the stock has corrected from their peak. Buying should be based on fundamentals and outlook.

Financials, especially leading banks, are now good buys as their valuations have fallen only as a result of FII sales.

Paradoxically, their profitability has improved and is steadily improving. They may continue to fall in the near term due to ongoing FII sales.

But for long-term investors with an investment horizon of at least 2 years, this is a great opportunity. It is best to avoid falling knives.


(Disclaimer: The experts’ recommendations, suggestions, views and opinions are their own. They do not represent the views of Economic Times)

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