It is better for retail investors to sit on cash at this point in time and buy stocks once valuations turn attractive post correction, says Mustafa Nadeem, Founder & CEO of Epic Research. Excerpts:

After hitting all-time high levels, markets are nervous in the last few days. Given the expectation on corporate earnings, do you justify the current valuation?

It’s been a fantastic rally which actually discounted most of the policies that focussed on structural changes. But given the current valuations, it was not justified. For us, a growth of 15-18 per cent was justified. Post GST, it was more of a stretch in valuations and the market is right now adjusting to the same. The correction underway is healthy in nature and will provide a decent consolidation which has been due for some time.

What is the good strategy for retail investors? Hold on to cash or buy during the correction?

At present, holding on to cash will be much better. We will see liquidity coming in due to festive season and there will be some pick up in business growth.

As far as investment is concerned or buying on dips, we will further like to wait and watch since we are cautious on any upmove.

A correction of 5-odd per cent will present us with a much better opportunity. That may be in November or December, we don’t know, as timing the market is difficult. A correction of 10-15 per cent is the range we are expecting and a rebound may be expected at those levels. Nifty’s 9,200-9,250 levels will be somewhat a point of demand where we see it to be picking up.

Do you expect a major correction from current levels? If yes, what could trigger that apart from the geopolitical situation?

First, market is adjusting to the valuations according to the results. Geopolitical tensions have been there for more than seven months and during this period market has given fairly good returns. So, in the event of acceleration of tensions, the market may see severe damage. As we said, timing the market could be tricky.

From Nifty’s 10,100 we are seeing a correction of 10-15 per cent. There can be several other factors. Developments on the GST and its numbers, results that will be coming in, GDP and so on. Not to mention the Fed which is on its way for a rate-cut in December; and crude is rising, which in turn is putting pressure on the economy.

Which sector will be the least affected in case of a correction?

I think, the dollar-rupee equation is one which will give some edge to the IT sector and will improve its overall structure in the short term.

FMCG and pharma will be defensive plays, going forward. Pharma has already seen a lot of pressure and correction, and I think, it is about time we see some meaningful rebound in the coming weeks.

Will Epic Research consider entering broking space? Do you have any other expansion plans?

Yes, We do. We have growth plans (lined up) since the financial sector offers huge opportunities.

We are looking to foray into the distribution channel through a separate arm. Mutual funds and other investment solutions provide an opportunity that we will be catering to.

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