‘As valuations of large-caps appeared to be out of whack, investors started lapping up quality mid-caps and small-caps, which were available at relatively comfortable valuations.’<\/strong><\/p>\n
“The market is still predicting that the impact of the second wave of COVID-19 cases won’t as severe as last year,” Lav Chaturvedi<\/strong>, ED & CEO, Reliance Securities, tells Ashley Coutinho<\/strong>.<\/p>\n
What are the risks for the market this year?<\/strong><\/p>\n
While the Indian economy started witnessing momentum after a sharp fall in economic activities induced by the pandemic last year, the second wave of COVID-19 cases and enhanced mobility restrictions imposed by several states have cast a shadow on the recovery phase.<\/p>\n
The market is still predicting that the impact of the second wave of COVID-19 cases won’t as severe as last year.<\/p>\n
Any prolonged economic restriction by large states beyond June and the further spread of COVID-19 cases in the hinterland, where the health care system is not up to the mark, can be the biggest risk to the domestic economy and equities.<\/p>\n
What is your take on current valuations?<\/strong><\/p>\n
The Nifty currently trades at 23x one-year forward earnings, which is over 25 per cent premium to its long-term average.<\/p>\n
Further, on the market cap to GDP parameter, India is trading above 100 per cent as of now, mainly due to contraction in GDP last year.<\/p>\n
However, the spread between government security yield and Nifty earnings yield is still 110 basis points (bps<\/em>), which is quite low compared to the long-term average of 185 bps and, therefore, we believe equity class is expected to remain a preferred investment option.<\/p>\n
How do you assess corporate earnings in Q4?<\/strong><\/p>\n
Notwithstanding cost inflation, Q4FY21 earnings growth is expected to be strong considering the low base of last year and a sharp demand recovery with improved capacity utilisations.<\/p>\n
In our view, higher capacity utilisation can potentially negate the sharp rise in input and freight costs to an extent.<\/p>\n
However, results of heavyweight financials\/BFSIs are expected to be crucial for overall Q4 earnings growth of Nifty50 companies, given the recent order by the Supreme Court.<\/p>\n
Do you see the outperformance of broader markets to continue?<\/strong><\/p>\n
The outperformance of mid-caps and small-caps was mainly on account of improved earnings visibility of corporate India.<\/p>\n
As valuations of large-caps appeared to be out of whack, investors started lapping up quality mid-caps and small-caps, which were available at relatively comfortable valuations.<\/p>\n
As we still believe that a corporate earnings recovery is very much on the cards, quality mid-caps and small-caps should continue to do well in the medium to long term.<\/p>\n
Which sectors are you betting on in the coming months?<\/strong><\/p>\n
A low-interest rate scenario in the last two years has certainly benefited rate-sensitive sectors.<\/p>\n
This has also aided the real estate market to see a sharp volume increase in recent months.<\/p>\n
Additionally, the strong pricing scenario and the uptick in demand globally aided metal stocks.<\/p>\n
Further, the announcement of a sharp increase in capital expenditures in the Union Budget fuelled a rally in infrastructure, cement, industrials, and capital goods.<\/p>\n
We believe sectors, which are beneficiaries of the capex revival, are likely to outperform from a medium-to-long-term perspective.<\/p>\n
What is your take on banking and NBFC stocks? Is the sector out of the woods yet?<\/strong><\/p>\n
We believe prolonged mobility and economic restrictions in states can adversely impact the growth trajectory of banks and NBFCs in the medium term.<\/p>\n
The sharp rise in daily caseload and wider economic restrictions by several states again posed risks to the asset quality of unsecured personal\/MFI\/consumer durable and even MSME loans.<\/p>\n
However, any such disruptions in economic activity always have a cascading effect in the subsequent months.<\/p>\n
This will impact both credit growth and asset quality assumptions for retail banking and NBFCs.<\/p>\n
What are the key trends you see emerging in FY22 for the broking industry?<\/strong><\/p>\n
A record increase in new clients onboarding and robust average daily turnover benefitted the broking industry during FY21.<\/p>\n
Given the cyclical nature of the broking business, along with the high base, market volatility, and phased implementation of new margin regulations, one can expect some tapering-off in the industry’s growth in FY22E.<\/p>\n
However, we still believe digital adoption and continued emphasis on improvising operating efficiencies can surprise all on the margins front.<\/p>\n
In our view, the industry is clearly shifting its focus from volumes to the number of trades, which may prompt brokers to target more customers onboarding and activation.<\/p>\n
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