Use this dip to correct imbalances in portfolio

I am very positive on banks but have not given up on IT or pharma and the dips should be used to fix any imbalance in portfolio, says Dipan Mehta, Founder & Director, Elixir Equities.

You are not too perturbed by yesterday’s dip, are you?
It is a relief dip. The way the market had just been moving up on a continuous basis and it did seem that it was getting a bit frothy but now some sort of cool-off has taken place although I do not think it is enough. The market could see further correction from these levels also. These are all technical corrections, global markets have turned softer and some concerns have come around lockdown, the vaccine and Covid-related issues. But it is more of a technical factor. After rallying the way it has to beyond everybody’s expectations, some sort of a correction was expected.

If the decline gets steeper, where would you be a buyer? Banks or IT/ pharma?
All corrections are good times to balance or rebalance the portfolio. So if a particular investor has got excess weightage in banks but is underweight pharmaceuticals or software then maybe that correction should be used to rebalance the portfolio accordingly. But from a purely risk-return basis, we would go with the banks at this point of time. There is a lot of choice and depending upon risk appetite, the bluest of blue chips like HDFC, Kotak and down the line certain high risk, high return banks as well the likes of Federal Bank or IDFC First Bank or RBL Bank can be looked at.

One can take a call in terms of risk appetite and accordingly look at buying into some of the banks. Some of the fears around a spike in NPAs post lifting of lockdown are gradually receding and most of the banks, at least the private sector ones have got very strong pre-provisioning profits which can be used to take care of any of the credit costs which may come through and by all means, all the credit costs and NPAs will get factored in by the time the March year-end is complete and done with. FY21-22 could again see banks delivering exceptional returns going ahead on the back of higher credit growth as well as lower credit costs. It will be the best of both worlds three to six months from now. I am very positive on banks but have not given up on IT or pharma. If investors are underweight over there, there are a lot of choices in IT and pharma as well.