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The rise in COVID-19 cases has roiled D-Street sentiments and investors will look to tread with caution.

Jay Thakkar, Vice-President and Head of Equity Research at Marwadi Shares and Finance, in an interview with Money9, shared his insights on the path investors should take amid the volatility and factors that will drive markets.

Edited excerpts: 

Q: The second wave of COVID-19 has made Indian markets volatile. US and European markets rebounded sharply from the second wave sell-off. Can Indian markets also witness a similar trend?

Thakkar: Yes, a similar thing is expected in India as well. The markets globally are fractal wherein the patterns are repeated however the magnitude differs. So, a fall should definitely be used as a buying opportunity as it is just a temporary effect.

Q: Q4 results season is just around the corner what are your estimates for it. Which sectors or companies will come out with robust earnings?

Thakkar: IT, pharma, cement, chemicals and infrastructure are the sectors that are likely to do well whereas BFSI may see some consolidation/weakness.

Q: Steel and cement stocks are a hot favourite of investors due to increasing demand and rising price. So, what is your take on the commodity cycle and how will it impact the stock movement of these sectors?

Thakkar: The commodity cycle has turned after almost a decade or more than that hence I believe that the current reversal or change in the commodity cycle or an uptrend in the cycle will last for few more years wherein these sectors will do quite well going forward especially steel within the metal space.

Q: With prices of most commodity rising how will it impact the profitability of user industries like auto, real estate, infrastructure and others?

Thakkar: Initially, there will be some pressure on the margins but eventually, these will be adjusted in the price hence there won’t be a longer-term impact on the earnings/margins/profitability.

Q: Which factors do you think will drive the equity market from here?

Thakkar: Spending in Infra i.e. the Capex plan that govt had announced in the Budget this will eventually lead to demand for cement and metals. FMCG, IT and Pharma the demand in these defensive sectors will also help due to an increase in demand domestically as well as internationally.

Q: Small & midcap stock have given much better returns compared to index heavyweights over last year. Do you think their outperformance will continue?

Thakkar: Selective midcaps are expected to perform well from hereon as well few of them will perform to catch up with the sector rally. However, the small-cap sector offers a better risk to reward in Small Caps than Midcaps. One must be quite selective in small caps.

Q: Can you suggest 5 stocks that can give a good return to investors in the next 12 months?

Thakkar: Technically BBTC, Finolex Industries, Gujarat Alkali looks good and is expected to provide 30% plus returns in the next 12 months. Whereas, fundamentally Nestle India and Abbott India are likely to provide over 30% in a similar time frame.

Q: It is estimated companies may raise more than three times the amount raised in FY21 via the IPO route. What advice would you give to investors on which IPOs to subscribe and which to avoid?

Thakkar: Last month of FY 20-21 was flooded with IPOs. However, the returns which the IPOs delivered last calendar year were not repeated in March 2021. So, it clearly indicates that valuations play a very important role. Companies that are coming with an IPO with a better price band and reasonable valuations will see good demand from retail as well as institutional investors. But those coming with a higher PE is likely to see underperformance and less buying interest both from retail and institution.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)