Markets oversold, largecaps offer best entry point right now: Rishi Kohli

The Indian equity markets have been a rollercoaster over the past few months, with valuations approaching levels last seen during the COVID-19 crisis. But investors are still grappling with the uncertainty of global news flows. Speaking to ET Now, Rishi Kohli, CIO, JioBlackRock AMC provided a detailed view of market dynamics and strategies for investors.

Volatility as a Seasonal Pattern

“So, on the markets yes, I mean, it has been really volatile, really difficult last few months. But if you recall last time I was on the show and we spoke, we did talk about some seasonality where basically Jan first week to March end you do have declines and volatility in the market more often than not, almost like 95% of the times. And different weird news keeps coming out every year. It is very different. So, this time obviously it was the war…” Kohli explained.

Reflecting on past trends, he added, “Typically, and especially when October to December is a rally, then you do get this wobbliness in Feb and March and this was no exception. So, the initial part of it was not surprising to that extent. But obviously the war and the way it is playing out with news changing every hour is obviously not something anyone can expect or analyse, so that is difficult.”

Valuations Signal Opportunity

Despite ongoing geopolitical uncertainty, Kohli believes the market is approaching an attractive entry point. “Last year earnings growth had not come in; that started coming in marginally over the last two quarters. We were expecting, and market was expecting, I was expecting too that March quarter and further quarters would become much better. Now, given all the geopolitics whatever is happening and India’s sensitivity to crude, obviously some of that earnings growth does get delayed by a quarter or two. But if we keep that aside, then just from a pure valuation perspective now you are on a trailing 12 months you are below 19 times which is on the lower end of your last 10-year sort of band.”

He further cited technical indicators: “Technically, you are pretty much oversold whether you look at the RSI which people do look at. In fact, weekly RSI is like at levels which has happened only once in seven or eight times in the last so many forever and then even on percentage of stocks above 200 DMA, 50 DMA these are various breadth measures that people look at. But on each of these you have come to very attractive levels and overall while growth will get marginally affected, obviously it still depends on how long this plays out…”

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Kohli added optimism on the Indian economy: “Having said that, one must not forget that India still remains the fastest growing major economy in the world. And whether you look at ROAs or other things, you are still relatively healthy despite the fact that it has come off a little bit compared to a few years back. So, on the margin those positives are still there, minorly deteriorated.”

Largecaps as a Safe Entry Point

Highlighting risk management, Kohli said, “If you do not buy when markets are down, even the headline indices down 15% from the peak and obviously many others are down much more, then you have to. Only thing is the fear factor will make you not act fully freely and therefore largecaps become interesting because largecap will fall lesser even if more fall has to happen, it will recover faster. Also, the top 10 stocks if you see in India, they are at historical bottoms and even largecap versus midcap sort of ratios are almost like at 97 percentile lows. So, these are very strong metrics to say that one should start entering the market and obviously largecap is a good entry point right now.”

Deploying Cash Strategically

When asked whether investors should go all-in, Kohli advised measured allocation: “I would say because it is a global geopolitics thing and like I said, no one can analyse or predict what is happening especially with someone like President Trump. But I would say yes, it is time to sort of at least put in 50% of whatever cash you have. And the rest I would, if you ask me for a portfolio allocation kind of strategy, then at the rest I would just stagger it over the next two months because if declines have to happen more, they would typically again May-June is a period where those could easily happen.”

Sector Allocation and Strategy

Kohli emphasized a systematic and quantitative approach: “We follow a very systematic and quantitative approach and we do have various approaches like the systematic active equity which we are using in our flexicap fund, will be using in our largecap fund which is launching, whose NFO is closing tomorrow. We also have the sector rotation fund which we spoke about last time… We end up having exposure to 17 level two sectors at any point in time roughly around that but the weightages can be very different. So, it can vary from 10% underweight compared to the benchmark to 10% overweight and there we rebalance it monthly. So, things can keep changing very-very fast.”

Earnings Growth Could Face Delay

On the potential impact of geopolitical tensions on earnings, Kohli noted, “The growth sort of speed up or acceleration we were expecting will, as I said, at least get pushed back by three-four months. Assuming that this sort of completes over the next month or so. If it continues for three, four, six months more, then just add that sort of period to that expectation… if someone was expecting 14%, that would probably come down to 10%. If someone was expecting 12, it will come down to 8-9—that 3-4% sort of decline for the coming financial year is definitely there due to this delay.”

Largecaps vs Mid and Smallcaps

Finally, on alpha generation, Kohli clarified, “Yes, they are way more beaten down. But even then, if you look at their valuations, they are still much-much above mean levels… Whereas, as we said, the largecap is at almost the lowest in the last 10 years. So, from that perspective and the fact that large to mid kind of ratios are also at like almost all-time lows when we say 97th percentile low, it is like really almost at all-time lows. So, given all that, largecap still remains much more attractive.”

He concluded with a reminder of market cycles and mean reversion: “We all forget it. There is recency bias. We all get into the herd mentality. Follow momentum in whatever some form or shape. But mean reversion does happen and that can be long because one has to remember that for the long period of time, small and mid is like… I mean, small especially is just one percentage higher or something than the large. I think mid has been slightly higher. But then there are pockets and that is where the timing and the rebalancing sort of helps in our opinion and our process.”

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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.

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