Sensex Could Reach 90,000 by December 2024, Says Bigul CEO Atul Parakh, Advises Focus on Large-Cap Stocks

Atul Parakh, CEO of Bigul, predicts that the Sensex may hit the 90,000-91,000 mark by December 2024, driven by strong GDP growth, increasing corporate profits, and anticipated foreign investments. However, he suggests that investors should exercise caution and consider booking profits in the short and medium term. Parakh also recommends focusing on large-cap companies with solid financials, as they are likely to better withstand market fluctuations. Below are edited excerpts from his interview:

Sensex hits 85,000. What is your target for December 2024?

Parakh believes that the Sensex could rise to between 90,000 and 91,000 by December 2024. He bases this projection on India’s strong economic growth, rising corporate profits, and expected foreign investment inflows. However, he emphasizes that several factors could impact this forecast, including the results of upcoming state legislative elections, global economic conditions, and geopolitical tensions, particularly in West Asia. The US Federal Reserve’s monetary policy decisions will also influence market sentiment. Despite the current rally to 85,000, which reflects strong momentum, Parakh warns that markets can be volatile, and investors should adjust their expectations as economic data and business performance evolve.

What challenges is Sensex likely to face in the remainder of the year?

The Sensex will face several challenges in the coming months. Global economic uncertainty, particularly concerns about a possible recession in major economies, could impact market sentiment. Rising crude oil prices may hurt India’s fiscal health and corporate earnings growth. Ongoing geopolitical issues in Asia, especially those related to West Asia, could also trigger market volatility.

On the domestic front, political uncertainty surrounding state elections, such as those in Haryana and Maharashtra, may also influence market dynamics. Persistent inflation could lead to tighter monetary policies, which may dampen GDP growth. The technology sector, a significant part of the Sensex, could face difficulties if the global economy slows down. Additionally, any sudden shifts in foreign institutional investor (FII) flows could lead to market fluctuations.

All these factors, combined with high current market valuations, indicate that the Sensex may struggle to maintain its recent upward momentum in the short term.

How should investors position their portfolios amid such high market valuations?

Given the current high market valuations, Parakh suggests that investors should approach their portfolios with caution. He advises short and medium-term investors to continue booking profits and focus on large-cap companies with strong financials and proven business models. These companies are more likely to handle market fluctuations effectively.

He also recommends using low-cost passive investments that track large-cap indices. While passive investments may not offer the highest returns, they provide a cost-effective way to participate in market growth while minimizing the risks associated with active management.

Parakh emphasizes the importance of diversification and suggests allocating a portion of the portfolio to AAA-rated government bonds for stability. He also advises using market-neutral strategies involving derivatives to limit exposure to market direction while still participating in potential gains. Investors should avoid sector-specific investments and instead focus on broad market exposure. Regular portfolio rebalancing is necessary to maintain the correct asset allocation. Lastly, he recommends keeping some cash reserves to take advantage of any market corrections. In overpriced markets, capital preservation and steady returns should take priority over pursuing high-risk, high-reward options.

What is your view on mid and small-caps right now? Too expensive to buy or is there more upside to be seen?

According to Parakh, mid and small-cap stocks present a mixed picture. While valuations are stretched compared to historical averages, these segments have performed well, particularly since the post-Covid period. Their continued success will depend on their ability to meet earnings growth expectations.

Parakh advises investors to approach mid and small-caps selectively, focusing on individual companies rather than broad index valuations. Some mid and small-cap companies have solid businesses with strong growth potential, which may justify their current valuations if they meet profit targets. However, he stresses the importance of caution, as the fundamentals and growth prospects vary widely within this category. A stock-specific strategy is essential, and a contrarian approach over a 3-5 year period may be a smart move, balancing potential upside with the risks associated with elevated valuations.

Looking at the market construct, there is a lot of sector rotation. Which sectors might come into focus going ahead?

Parakh identifies three sectors that are likely to gain attention in the near future. First, he believes the consumer discretionary and durable goods sector, which includes retail and appliances, will see increased activity as rising disposable incomes and holiday spending drive demand for consumer goods.

Second, the banking sector appears poised for growth, with credit demand expected to rise and concerns about asset quality easing. Large private sector banks and select public sector banks (PSUs) are likely to perform well.

Third, Parakh sees potential in the auto sector, driven by strong festive demand, particularly for two-wheelers and passenger vehicles. Improved supply chains and new model launches are expected to boost sales.

He also highlights the real estate sector, which could benefit from improving affordability and stabilizing interest rates. Specialty chemicals and financial services are other sectors that Parakh recommends keeping an eye on.

Do you believe PSUs are a forgotten story or will they continue seeing multibagger returns as the Modi government returns for a third term?

Parakh does not believe that public sector undertakings (PSUs) are a thing of the past. In fact, many PSUs have delivered strong returns over the past decade. He expects PSUs to continue growing as long as the current government maintains its existing policies. Given their strong fundamentals and historical track record, Parakh sees opportunities for significant returns in this sector, especially as it adapts to ongoing economic shifts.

With the market valuations so high and the IPO pipeline so robust, is this the right time to invest in them?

While the IPO pipeline is promising, Parakh advises investors to carefully research each offering and consider overall market trends before making decisions. He recommends applying for IPOs with the aim of gaining from listing-day gains. Among the upcoming IPOs, he highlights some strong fundamental companies like Bajaj Housing Finance, Reliance Jio, Tata Passenger Electric Mobility, and Manappuram Finance’s Asirvad Micro Finance, as good investment opportunities. He advises staying invested in these strong stories.

Apart from equity, what other asset classes should a moderate risk investor accumulate from a long-term perspective?

For investors with a moderate risk appetite, Parakh suggests diversifying into different asset classes. In addition to equities, he recommends bonds and alternative assets that are not highly correlated with the stock market. He specifically mentions bullion, with a focus on silver, as a good investment. Striking the right balance based on individual risk tolerance, time horizon, and financial goals is key to long-term success.

Which big events will dictate the markets in the next few months?

Key events that could shape market trends in the near future include geopolitical developments, particularly in West Asia, as well as US elections and central bank policies. Investors will also need to keep an eye on market valuations and corporate earnings. These factors could significantly impact market movements in the short term, and investors should stay informed to navigate through these challenges.

One piece of advice for new investors.

Parakh’s advice for new investors is to understand their strengths and areas of knowledge when making investment decisions. This approach minimizes risk and increases the likelihood of long-term success. For those starting out with smaller funds, he recommends mutual funds as a good entry point. Alternatively, new investors can opt for structured stock baskets or portfolios offered by SEBI-registered advisors and stockbroker advisories for professional guidance.