Bullish on NBFCs, IT; FII inflows, domestic liquidity driving uptrend in markets: SAMCO MF

The momentum that is building up in the share markets will continue to strengthen, giving investors reason to have a bullish outlook on the domestic stock market, said Viraj Gandhi, CEO, SAMCO MF, in an interview with Zoya Springwala of FinancialExpress.com. 

What is your outlook on the short-term trend of the markets? What, in your opinion, is driving Nifty’s current uptrend?

We are bullish on Indian markets in the near to medium term. We believe the momentum is building up in the domestic markets and it will get stronger going ahead. There are certain pockets in markets which have seen good price corrections in recent times and have also reported healthy earnings in the past one year. Such sectors like IT, Consumption and NBFCs quality names in these sectors should do very well going ahead.

Another factor that is driving Nifty uptrend is inflows from the Foreign Portfolio Investors (FPIs) have turned positive in the last two months. The reason behind these increased inflows is the expectations that interest rates in the USA are expected to go down in the second half of 2023. Intrinsic India numbers are strong as compared to other Emerging Markets (EMs), thus its potential to attract foreign flows is also more. Also, domestic liquidity (SIP + Institutional Money) is equally a strong supporting factor. Domestic interest rates too are expected to cool off, that will aid market sentiment. All these factors are contributing towards a positive environment for our index. 

What sectors are you favouring or are bullish on? Why?

We prefer IT and larger NBFCs as sectors which have good potential to grow in future. Bigger names in both these sectors have seen good price correction with earnings growth of 20-30% which makes the risk reward ratio very favourable. With expectation of fall in rates in the later part of this calendar, we feel, strong and quality names of these sectors should outperform the benchmark index and reward the investors handsomely. 

What market strategies are you employing to generate alpha returns?

Momentum as a strategy is a key to outperform the market in a shorter time frame. We have built in-house indicators which suggest where we can play momentum as a theme and generate excess returns for our investors. The momentum investment strategy deals with picking up a stock which is outrunning the market currently and is expected to outrun the market for another two-three quarters and offload the stocks in the portfolio which are not performing. 

Can you give us examples of its effectiveness? What stocks are good stocks to trade using this strategy?

Momentum as an investment strategy is quite popular in the international market. Internationally, Morgan Stanley, leading provider of indices has constructed MSCI world index. This index has a total 1,507 constituents from 23 Developed Markets (DMs) of the world. This index has given ~10x returns from 1994 till date, while during the same time frame MSCI World Momentum Index, comprising 320 companies of MSCI World Index universe, has given 19-20x returns. Thus, it has generated 100% more alpha than MSCI World Index.

Domestically, in India, NSE has two Momentum Index, namely Nifty 150 Momentum 50 index and Nifty 200 Momentum 30 Index. These two indices have outperformed benchmark index NSE Nifty 50 by handsome margin during 2005-2023 period. Nifty 150 Momentum 50 index has delivered 17-18% CAGR while Nifty 200 Momentum 30 index has grown at an ~21% CAGR during this period compared to NSE Nifty 50 delivering 12-13% CAGR return. This shows how effective this strategy is, over the years both domestically and internationally.  

What are other strategies that you are favouring?

Growth style of investing is what we prefer at SAMCO MF for long term buy and hold strategy and we invest in businesses which pass our proprietary framework. For short term outperformance, we employ Momentum Strategy which we capture through indicators developed internally, which is proprietary to us. There are few other strategies we are working on internally which we will offer to our investors going ahead.