{"id":124989,"date":"2022-02-02T08:38:57","date_gmt":"2022-02-02T08:38:57","guid":{"rendered":"https:\/\/fin2me.com\/?p=124989"},"modified":"2022-02-02T08:38:57","modified_gmt":"2022-02-02T08:38:57","slug":"2022-will-be-a-year-of-volatility","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/2022-will-be-a-year-of-volatility\/","title":{"rendered":"‘2022 will be a year of volatility’"},"content":{"rendered":"

‘Making money in such markets is typically harder and investors need to put in considerable effort to identify stock ideas over the year.’<\/strong><\/p>\n

Weakness in earnings delivery could severely cramp investor sentiment, forcing a re-rating of stocks, Jinesh Gopani<\/strong>, head-equity, Axis Mutual Fund, tells Ashley Coutinho<\/strong>\/Business Standard<\/em>.<\/p>\n

How will the progress of Omicron impact markets this year?<\/strong><\/p>\n

As the pandemic progresses, newer and deadlier variants are affecting the global population, hampering productivity and economic output.<\/p>\n

The latest numbers in India and the US underscore the pace at which the mutated variants are spreading, despite a high degree of vaccinations and booster shots.<\/p>\n

Another alarming aspect to this is the pace at which children are now getting infected.<\/p>\n

Markets will swing to the tunes of Covid for some time to come till we see medical intervention eliminate the threat completely.<\/p>\n

Earnings projections thus far factor in strong growth recovery, despite headwinds from Omicron.<\/p>\n

Weakness in earnings delivery could severely hamstrung investor sentiment, forcing a rerating of stocks.<\/p>\n

What are the global cues to watch out for in 2022?<\/strong><\/p>\n

The world has enjoyed the benefits of easy monetary policy for the better half of two decades.<\/p>\n

During this time, central bankers the world over kept rates low to propel global growth and steer clear of stagflation.<\/p>\n

The Covid shutdowns and disruptions have now stoked worrying inflation numbers across the world.<\/p>\n

With growth coming back, bankers are now recalibrating monetary policy to normalise the excesses and glut in liquidity.<\/p>\n

For the stock market, which has been the biggest beneficiary of this expansionary monetary policy, a policy normalisation could jolt markets and burst bubbles, wherever they may be, rather quickly.<\/p>\n

What should investors do?<\/strong><\/p>\n

2022 will be a year of volatility.<\/p>\n

Making money in such markets is typically harder and investors need to put in considerable effort to identify stock ideas over the year.<\/p>\n

In addition to the risks mentioned, we believe domestic factors and stock-picking will play a more important role in portfolio performance.<\/p>\n

The India story has been largely insulated from long-term external factors due to proactive changes to the economic structure and policy reform.<\/p>\n

2022 will continue to see the benefits of these unique attributes.<\/p>\n

What about current valuations?<\/strong><\/p>\n

Third-quarter results will incorporate the full set of festival demand and the associated profits.<\/p>\n

From our channel checks across sectors, corporate earnings are likely to marginally beat or match consensus sell-side earnings estimates.<\/p>\n

Much of this, however, is already priced in.<\/p>\n

Earnings misses will affect stock prices adversely as markets are looking for a reason to correct even small excesses.<\/p>\n

We are now in the fourth quarter of 2021-2022, and as market participants, we are looking at the 2022-2023 numbers.<\/p>\n

Valuations from that perspective have now re-entered the long-term average range.<\/p>\n

Price-to-earnings compression was a theme we have been factoring into our research, given the normalisation of earnings.<\/p>\n

Visibility of earnings in most of our portfolio companies looks robust thus far and accordingly, we believe the valuations are comfortably adjusted for growth.<\/p>\n

What are your views on mid and small-cap stocks at this juncture?<\/strong><\/p>\n

Mid and small-caps have had two good years on the back of growth normalisation, new quality entrants to the universe, improving balance sheets after deleveraging, and improving efficiency metrics.<\/p>\n

Another element that has played a pivotal role is the improving liquidity in many of these names.<\/p>\n

As participation improves and the mid and small-cap universe gets deeper, this space has opened up bigger opportunities for investors to participate in.<\/p>\n

We remain constructive on mid and small-caps.<\/p>\n

However, the thumb rule to investing in these names is to do due diligence before investing and remain vigilant about the progress of the company for the duration of the investment.<\/p>\n

In the downcycles, this segment is the first to get downgraded and drawdowns can be very steep.<\/p>\n

What is your take on the current crop of new-age IPOs? How are fund managers assessing these companies?<\/strong><\/p>\n

The coming-of-new-age companies to the market is an evolutionary change that promises to bring to the fore new businesses and a new way of doing business in India.<\/p>\n

We often say the capital market is a barometer for the health of the Indian economy.<\/p>\n

Today, many of these platforms and companies play a crucial role in our lives and have become economically important segments.<\/p>\n

Their entry into the capital markets reflects the ongoing economic change in the constitution of the capital markets and indices we track on a regular basis.<\/p>\n

From a valuation-metric basis, the earnings trajectory of many of these companies is back-ended due to their business models.<\/p>\n

Hence, using traditional earnings-based valuation models may not reflect the most ideal way to value these companies.<\/p>\n

That being said, we have remained selective in our approach to participating in the primary markets, as well as in IPOs.<\/p>\n

A qualitative approach, in our experience, is a better medium to explore and invest in these companies.<\/p>\n

Like the rest of the market, we are evolving our research methodologies to better understand such companies, as more and more firms with back-ended earnings trajectory crop up.<\/p>\n

Feature Presentation: Aslam Hunani\/Rediff.com<\/em><\/strong><\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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