"If you don't count RIL, mkt is at 10,200 pts"

B Gopkumar, Managing Director and CEO, Axis Securities, spoke to ET Wealth about the polarisation in the market, the impact of Covid, the loan moratorium and whether gold will continue to rally.Markets have surprised everybody in the past three months. Do you think a correction is in store after this massive rally from the March-April lows? Markets have indeed run up quite a lot, but not all stocks have done well. People have seen it from an index perspective and said that markets have run-up. But only largecap stocks have rallied while mid-caps and small-caps have not moved up much. Even within large caps, the rally has been confined to a handful of stocks. Reliance Industries alone has contributed more than 1,000 points to the Nifty. If you do not count Reliance, the Nifty is actually at 10,200 levels which takes us to pre-Covid February levels.Do you see things changing in the coming months? Which sectors could do well? Due to the lockdown following the pandemic, there has been very little economic activity. Every time the lockdown opens, cases spike. The disease is now spreading to rural areas as well. So, we have to wait and watch how the pandemic pans out. The rural economy is looking up so consumption-oriented and rural-focused stocks could do well.When will the rest of the market catch up with the index? Right now, institutional investors are focusing on large-cap stocks. When the correction happened, these stocks were at compelling valuations and a substantial amount of money moved to the top 20-30 stocks. We think the mid-cap and small-cap segments may continue to underperform the large-cap segment and will take some time to bounce back. I am not in the camp which tries to buy small-cap stocks when valuations drop in the segment. It is best to restrict that tendency and pick a few mid-cap ideas while focusing sharply on the large-cap segment.What is your advice to stocks investors for the coming months? Growth, value and quality are the three vectors that investors consider. Historically, in India, value and quality have done much better than growth. If you had focused on quality and value, you would have made good money. If you were chasing growth you might not have done so well because corporate earnings dipped last year. So now it is time to look at growth stocks because corporate earnings are likely to improve going forward. A combination of growth and value can be a winning strategy. Obviously, you also need to have quality—that is a given.Many borrowers opted for the loan moratorium. Could there could be a surge in defaults when it ends? A lot of people did not understand the moratorium. They opted for it thinking they won’t have to pay EMIs for 3-4 months without realising that interest will keep adding up. Later the banks issued clarifications that they will have to pay interest. If you look at the four largest banks, the provisions for the moratorium were very large at 40-45% in the first couple of months. As borrowers understood the terms, they started paying EMIs and the provisions came down to 9-10%.Even if we assume there is no stress, a healthy growth in credit offtake seems unlikely in the current situation. Banks are being risk-averse to some extent. They also have to look at the economic environment and gauge what is happening. Once the lockdown opens, they will come back and start lending again. Some of the green shoots are already visible in the economy.Some global agencies and analysts say the Indian economy is headed for deep trouble. Do you believe that? I do not really believe that. Whether it is the RBI, or the central government, timely interventions and remedial measures have been taken. If you look at the key economic metrics, India has done much better than other economies across the globe. The gold rally looks unstoppable. Where do you see prices by Diwali?Gold is always seen as a safe haven, and hence it does well during uncertainty. We have not set any targets for Diwali, but we expect gold prices to be very volatile over the next six months. There will not be major upsets, but the volatility will be very high. This is because the world has so much liquidity.Sebi is planning a direct market access system to allow investors to buy directly without routing the transaction through a broker. Is that possible? There are a lot of misconceptions about the proposed direct market access system. Such a system is meant for large institutional investors who do high-frequency trading. These trades are routed through brokers’ risk management systems, who also take care of the KYC requirements. Brokers ensure risk management, build client-centric platforms, and offer customer services, which forms a larger part of their activities apart from building reach through the branch network. We do not believe that direct to the exchange system will be able to handle these activities.Are investors buying mutual funds on stock exchanges? Mutual fund units can be bought through stock exchanges but barely 2-3% of the total value of units gets traded through that channel. This is because almost 90% of the business of mutual funds comes from independent financial advisers or banks. So, buying mutual funds through stock exchanges has not really taken off. Even so, it is a really convenient mode as units stay in the client’s demat account.

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